Friends rejects £3.5bn offer from JC Flowers

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The Independent Online

Friends Provident has rejected a £3.5bn takeover proposal from JC Flowers, the US buyout firm that has been stalking the British insurer since the end of last year. Friends said yesterday that JC Flowers' 150p-a-share indicative cash approach "significantly undervalues Friends Provident ... and its prospects and does not represent a basis for discussion".

The proposal was subject to due diligence and indicated that the price would be reduced if Friends paid shareholders the 2007 final dividend of 5.3p a share, the company said.

JC Flowers, headed by the billionaire former Goldman Sachs partner Christopher Flowers, revealed in January that it had bought a 2.7 per cent stake in Friends and said it might make a bid. The turnaround specialist had previously considered a bid for Northern Rock to spearhead its move into UK financial services.

Friends had grown increasingly irritated with JC Flowers and said last month that the uncertainty over its intentions was damaging Friends' business. It is understood Friends Provident asked the Takeover Panel last week to tell JC Flowers to make its intentions clear.

The investment firm is understood to have made an approach in December, suggesting a deal at 175p a share. Friends shares rose 2.9 per cent yesterday to 123.6p, valuing the company at £2.9bn, 18 per cent below JC Flowers' proposed price. The shares have fallen 24 per cent this year on concerns about prospects for the company, which has been without a chief executive since November.

Friends Provident's fate has been in the balance since its proposed merger with Resolution was wrecked by Pearl, which made a successful bid for Resolution. It is waiting for the arrival of Trevor Matthews as chief executive from Standard Life after Philip Moore left following the collapse of the Resolution deal in October.

Friends announced a restructuring plan in January to strip the business back after it expanded too quickly in low-margin, long-term corporate pensions. The 176-year-old insurer said last month it was making good progress in selling assets, including its 52 per cent stake in F&C Asset Management.