Insurer Resolution yesterday launched a shareholder offensive aimed at shoring up its proposed nil-premium merger with Friends Provident, in the teeth of a likely counter-bid from Hugh Osmond's Pearl Assurance.

Osmond holds almost 16% of the shares and needs 25% to block the "Friends Financial" merger, but Resolution stressed yesterday that it had the option of changing the legal form of its bid from a scheme of arrangement to a takeover offer, which would require only 50% shareholder approval.

The company added that combining with Friends would create a new insurer valued at about £8bn, holding the number one position in the UK group pensions market and third place in the protection insurance market.

Resolution is targeting £100m a year in cost savings by 2010, through one-off implementation costs of £120m, a quarter of which would come from the merger of the two asset management arms.

That deal would see London-based F&C Asset Management taking control of Resolution Asset Management, which employs almost 400 staff in Glasgow and has been promising continued expansion.

The two companies have so far declined to comment any further on the implications of the plans.

"The board believes this merger will create significant value for, and will be welcomed by, Resolution's shareholders," the company said, adding that the merger update had been partly prompted by "recent share price movements in the market and the insurance sector in particular".

It said the board's sole aim was to "continue to build on its outstanding record by continuing its strategy of participating in the consolidation of the UK life sector".

According to Resolution, the deal's value includes a combined new business franchise that was last year worth around £250m before tax, along with profits from Resolution's service company and the ongoing synergy benefits.

"Through the combination of Friends Provident's new business capability and Resolution's cashflow generation, Friends Financial can provide shareholders with both profitable new business growth, growing dividend income and the prospect of a return of capital to shareholders in 2008."

It said profitable new business opportunities included a share for Friends Provident of the £900m a year of pensions vesting on Resolution's books, scope for Friends to expand the bancassurance link with Abbey, and new Friends products targeted at the seven million holders of in-force policies on the Resolution books.

"The board therefore believes the current share price fundamentally undervalues the prospects for Resolution shareholders as part of Friends Financial," it said.

Resolution chairman Clive Cowdery is reported as being willing to talk to Osmond, but only at a starting price of 700p a share. The statement underlined that Resolution "remains relentlessly focused on the delivery of value to shareholders".

Resolution shares closed 4p higher at 653.5p.