Friends Provident rejects Resolution's revised offer

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The insurer Friends Provident has rejected a revised takeover proposal by the insurance tycoon Clive Cowdery's investment vehicle Resolution, citing "significant flaws", particularly over structural and corporate governance concerns.

The rejection came yesterday evening several hours after Resolution unveiled a sweetened offer that would have given a cash component, worth a reported £300m, for up to the first 2,500 investors' shares in Friends Provident. The rest of the consideration would be offered in new Resolution shares for Friends Provident's nearly 750,000 shareholders, most of whom are private investors.

A spokesman for Resolution said: "We are disappointed that the Friends Provident board is not more focused on the best interests of shareholders. Resolution continues to consider its position."

The rebuff also followed a meeting between Mr Cowdery, Resolution's chairman Mike Biggs and chief executive John Tiner and the Friends Provident's chairman Sir Adrian Montague and chief executive Trevor Matthews. The meeting, attended by advisers for both companies, was understood to have been a frank exchange of views. Market sources said talks between the advisers were continuing. In a statement, Friends Provident said Resolution's proposals were "flawed in a number of significant ways" that the insurer sought to address in its "Pac-Man" proposal unveiled on Friday, when it attempted to turn the tables and made an offer to take over Mr Cowdery's company instead. Resolution offered a small premium to Friends Provident's £1.6bn market value.

The insurer said: "In particular, Friends Provident continues to believe that key elements of Resolution's structure and its governance arrangements are totally inappropriate in a public company context and materially out of line with currently adopted best governance practice."

It also took issue with the fact that key members of Resolution's management team are not represented on its main board, but sit with Resolution Operations. Another concern is what Friends Provident describes as the "significant fees and preferential entitlements accruing to third-party vehicles controlled by and for the sole benefit of individuals represented by Resolution Operations".

Resolution, which raised £600m in a stock market listing in December, believes the life assurance sector is ripe for consolidation. After making acquisitions, it intends to return the enlarged group to the market with a re-listing by 2012.