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.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article