Friends Provident confirmed yesterday that it was in talks over a possible takeover by Resolution Life, sparking speculation that this could result in an auction.
The all-share deal on the table would give Resolution 50.9 per cent of a merged company that would be valued at more than £8bn, with Friends taking 49.1 per cent.
Yesterday's announcement of talks won the support of analysts and pushed shares in both companies higher, with Friends up 14.75p to 201p and Resolution finishing 7p better at 636p.
Resolution would bring capital strength to Friends, which is suffering considerable new business strain, while Friends would supply a greatly enhanced new business generating capacity to Resolution, whose specialism is running closed life insurance funds.
The latter, set up by the insurance entrepreneur Clive Cowdery, has grown explosively by buying up closed life insurers and bolting them together, thereby reaping substantial cost savings.
However, deals have been harder to come by recently and Friends would give the company a new growth avenue in addition to its small fund management operation.
Sources close to Resolution insisted the group would continue to be on the hunt for deals even if the Friends takeover goes ahead.
Yesterday's proposed deal would see the former Aviva finance director Mike Biggs, currently chief executive at Resolution, running the enlarged group, with Friends' recently appointed chief executive, Philip Moore, installed as his deputy with a view to assuming the top post at a later date. He has only been in the job since 1 January.
Mr Cowdery is understood to have made it clear he wants to continue as the chairman, although his style has led to problems in the past and Resolution's respected former chief executive Paul Thompson is thought to have departed after clashes between the two.
Friends has previously been the subject of private equity interest, although analysts have questioned whether the private equity tactic of ladening firms with debt and increasing efficiencies would work with Friends.
It is already seen as an efficient operation and the Financial Services Authority would be expected to pay careful attention to attempts to gear up a life insurer, given the long-term liabilities they face.
Other potential counter-bidders mentioned included the French insurer AXA and Standard Life. The latter has told analysts that Friends would not be a strategic purchase, but its existing UK business is seen as a sub-scale operation compared with the company's other non-French operations.Reuse content