Friends resumes Resolution talks

Talks between Friends and Resolution are back on again

Insurer Friends Provident has resumed talks with investment firm Resolution after receiving a revised £1.86bn proposal for the companies to merge.

Friends said that Resolution's latest cash and shares takeover proposal - its fourth - was "sufficiently improved to justify entering into discussions".

Friends shares rose 6.9%, with analysts saying a takeover was "inevitable".

Resolution had been knocked back over price and disagreements over who should be in the driving seat of any merger.

'Misjudged'

Under the new terms, Friends investors will receive 0.9 Resolution shares for each of their own. There will also be a cash alternative available of up to £500m for Friends' 700,000 retail investors.

"While discussions are ongoing, there can be no certainty that any offer will result nor as to the terms on which any offer might be made," Friends said.

However it is possible that it will recommend the offer as soon as Tuesday, when it announces interim results.

Talks between the two businesses officially ended two weeks ago, but Resolution has since been given access to the insurer's books amid reports that Friends shareholders backed the sale.

"Given the rhetoric and language used by Friends to reject previous proposals... we suspect that Friends has misjudged the mood of some of its largest shareholders," said Panmure Gordon analyst Barrie Cornes.

Share falls

Friends, which was founded in 1832 and demutualised in 2001, has UK bases in Manchester, Exeter, Salisbury, London and Dorking, Surrey.

Resolution - which floated in December last year - is the investment vehicle set up by insurance tycoon Clive Cowdery to buy under-performing financial services firms.

Mr Cowdery's first insurance company Resolution Plc agreed to merge with Friends in 2007, but the deal lapsed when Pearl Group took over Resolution.

Shares in British insurers have fallen sharply in the past year because of fears that falling markets could hit their capital reserves.