Friends backs Resolution takeover

Friends may not be Resolution's only target.

Insurer Friends Provident has agreed a £1.86bn takeover proposal from investment firm Resolution.

Friends had snubbed several offers from Resolution, but has now agreed a deal where investors will get 0.9 Resolution shares for each one in Friends.

Smaller shareholders in Friends Provident will also be offered a cash alternative to the shares.

The announcement came as Friends announced a pre-tax profit of £32m in the first six months of 2009.

Chief executive officer Trevor Matthews said that trading conditions remained "tough" in the UK - as the recession saw fewer people opening pension schemes while payments being made into existing pensions were reduced.

Bid saga

Mr Matthews said he was "enthusiastic" about the future with Resolution.

"We look forward to playing a leading role in industry consolidation and re-shaping the new business landscape," he said.

Resolution chairman Mike Biggs said the purchase of Friends was an "excellent first step" in its proposed restructuring of the UK life assurance and asset management sectors.

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

Analyst David Buik of BGC Partners told the BBC the takeover "made sense".

He added Resolution was likely to look at buying other insurance firms such as Scottish Widows and Clerical Medical.

Shares in British insurers have fallen sharply in the past year because of fears that falling markets could hit their capital reserves, as well as eat into the value of their investments.

Friends shares were valued at about 75 pence at the close of Monday trading - having listed at 225p in 2001. Resolution's bid values Friends Provident at 79.4p a share.

Resolution's offer also includes a cash alternative worth up to £500m for Friends Provident's 700,000 smaller shareholders.

Friends Provident, 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.