Friends Provident set to reject Cowdery's offer

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The Independent Online

Friends Provident, the insurance group, is expected to rebuff a takeover approach from financial services tycoon Clive Cowdery's investment vehicle Resolution today.

Mr Cowdery is understood to have made the audacious all-share offer for Friends Provident, which has a market capitalisation of £1.4bn, at the end of last week in a letter to Sir Adrian Montague, the chairman of the life insurance and pension provider. It is thought that the offer placed a small premium on Friends Provident's shares, which closed at 60p on Friday evening. Both Resolution and Friends Provident declined to comment last night.

However, speculation in the market is that Friends Provident is likely to give the offer a cool reception this morning – for several potential reasons, notably on price. A key concern is likely to be that the offer undervalues the long-term potential of Friends Provident, whose new chief executive, Trevor Matthews, is starting to turn around its performance.

The basic pay of Resolution's five partners, led by chief executive John Tiner, are linked to the size of the business they run. It has been reported that each of them could be able to take salaries of £2m, but any such deal for Friends Provident is likely to involve a payout for a larger number of employees at Resolution.

However, shares in life insurance companies have tumbled in 2009, partly over concerns that falling stock markets and growing bond defaults could deplete their reserves. Mr Cowdery and his investors believe the market is ripe for consolidation. Market speculation has previously linked Resolution to deals for insurance assets including Scottish Widows and Clerical Medical, both of which are now part of Lloyds Banking Group.

If his bid is rejected, it is unclear what Mr Cowdery's next move will be. It is understood that he and other Resolution directors will speak to shareholders this week, but it is not clear if an improved bid will be forthcoming. In fact, some of Resolutions' investors, Legal & General and Fidelity, are thought to also be shareholders of Friends Provident, raising questions over whether they would want to pay a premium for shares in a company they already partially own.

Furthermore, Mr Cowdery is known to have spoken to several other parties concerning takeovers and spent £4m on due diligence for potential deals in the first three months of this year, according to recent results. Given that Resolution generated a £600m war chest from a stock-market listing in December, Mr Cowdery and his backers are keen to start acquiring life insurance companies. The strategy is based on a need to acquire three or four companies to restructure and deliver synergies before realising their investment in up to four years.

Mr Cowdery, whose work ethic among colleagues is legendary, made £150m from the £5bn sale to Pearl Assurance of the first company he established, in late 2007 .

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