'Friends' in talks with suitor

BRITISH LIFE insurer Friends Provident has agreed to talks with suitor Resolution after receiving a revised offer valuing it at £1.9 billion.

Though no deal has yet been agreed, sources close to the matter said an agreement could be announced as early as today, when Friends reports first-half earnings.

Friends would be a critical first deal for Guernsey-based Resolution, which raised £600 million in a stock market listing last December to buy and restructure life insurers and asset managers. Friends is its first formal target.

It would also mark the end of years of suitors’ interest in Britain’s smallest bluechip life insurer – a takeover target since it demutualised and listed in 2001 – and the first major UK insurance takeover in almost two years.

Based on Friday’s closing share prices, Resolution’s offer values the company at 79.4 pence, a 13.3 per cent premium but still only little more than one-third the 225p price at which the group first listed on the stock market eight years ago.

Analysts said they expected a deal at last for Friends after months of on-off negotiations with suitors.

“It is debatable whether this should be viewed as a takeover. Friends still keeps its management, franchise and strategy, and what they are getting on top is Resolution boss and insurance veteran Clive Cowdery with his cash, contacts and deals,” analyst Peter Eliot at MF Global said.

Two top-15 shareholders in Friends – whose shareholder base overlaps substantially with its suitor – confirmed investors broadly favoured joining forces with Resolution through the revised offer. “There’s been a lot of frustration among Friends’ shareholders that there hasn’t been any progress or growth in the Friends share price over the last few years,” said one.

Friends said the latest offer was an exchange ratio of 0.9 Resolution shares for each Friends share, and also included a partial cash alternative of no more than £500 million. That compares with an earlier proposal under which Friends shareholders would have received 0.82 Resolution shares for every Friends share.

A successful deal would also trigger speculation regarding Resolution’s next target. Analysts have speculated that future targets could include insurance units of Lloyds Banking Group, particularly its Scottish Widows life business. Friends is this morning expected to post a drop in profit, hit by weaker sales as the group withdraws from less lucrative areas of the market. – (Reuters)