The insurance group Friends Provident forcefully rejected the preliminary takeover approach from the insurance tycoon Clive Cowdery's investment vehicle Resolution yesterday.
Friends Provident also raised questions over Resolution's commitment to a dividend policy, its corporate governance and the complexity of the proposed board.
The insurer said the terms of the all-share offer of 0.8 new Resolution shares for each Friends Provident share are "wholly inadequate to compensate" shareholders, in a statement to the Stock Exchange.
While City analysts said the rejection was expected, some believe that the two companies should be able to find common ground, given that a number of the major shareholders, who own shares in both companies, are on board.
Peter Eliot, the analyst at Man Securities, said: "We believe there will be pressure on Friends to eventually recommend a revised offer."
It is understood that Mr Cowdery will speak to Resolution's shareholders this week about the response.
Resolution, which raised £600m from a stock market listing, is keen to press ahead with acquisitions in the life assurance sectors. It plans to acquire a small number of insurers, restructure them, drive synergies and then return them to the market as a single company in three to four years' time.
In a statement, Resolution said: "Resolution Operations is assessing possible transactions with a number of UK life assurance companies on behalf of the company, including both listed and privately held groups." Resolution said no decision had been made to make an offer for Friends Provident.