Perth-based conglomerate Wesfarmers is poised to take over major broker OAMPS after making a $700 million cash offer for the company.

The OAMPS board has unanimously recommended the bid to shareholders, which values the company at $4.50 a share.

The move gives Wesfarmers a significant foothold in the Australian market, with opportunities for further expansion in Australia and offshore already being considered.

The WA company already owns Wesfarmers Federation Insurance and Lumley General Insurance operations in Australia and New Zealand, which had gross sales in the 2005/06 year of about $1.1 billion. OAMPS’ gross sales in the same period was about $1 billion.

In a joint statement, the two companies said OAMPS will form part of the Wesfarmers Insurance Division overseen by divisional MD Bob Buckley.

It’s likely that the OAMPS underwriting agency businesses will be merged into the Wesfarmers Insurance Division, while the broking operations will be managed at arm’s length.

Wesfarmers MD Richard Goyder says the OAMPS broking business “will continue to operate separately from Wesfarmers’ combined underwriting businesses to maintain its independence and to ensure that the successful growth of the company continues”.

Describing the merger of the two businesses as a “strong strategic fit”, he said the considerable consolidation taking place in the local industry at the underwriting level is likely to flow on to insurance broking.

“The existing underwriting capacity of OAMPS is limited by its size and relative balance sheet strength,” he said. “The combination of Wesfarmers’ strong balance sheet and A- credit rating and OAMPS’ specialist underwriting skills will create opportunities to access new underwriting niches and to optimise reinsurance arrangements.”

Mr Goyder says the acquisition will also provide Wesfarmers with a more diversified business base “from which we can explore additional opportunities in the financial services sector”.

OAMPS MD Tony Robinson says the unanimous recommendation of the offer by the board comes in the absence of a superior proposal.

He says the OAMPS board has considered various proposals in the past, including the de-merger of the underwriting and broking arms. “OAMPS has also recently received approaches from private equity houses with an interest in implementing transactions involving OAMPS,” he said.

“The board… believes the Wesfarmers offer represents the best outcome for OAMPS shareholders, both in terms of price and certainty.”

Wesfarmers says it will continue the OAMPS broker acquisition program, and hinted in the joint statement at bigger acquisitions ahead. “It is expected that substantial industry consolidation opportunities will continue to emerge in Australia and offshore, some of which may be better accessed with Wesfarmers’ balance sheet strength.”

Shareholders are expected to receive details of the bid within the next three weeks, with the scheduled closing date of the offer expected before the end of October.