Friends shares fall after Flowers refuses to increase £3.5bn bid

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JC Flowers has given Friends Provident until Friday to enter talks and made it clear that it will not raise its £3.5bn takeover proposal for the insurer. Friends Provident is sticking to its assertion that Flowers' proposal is not a basis for discussions.

It now looks as though only a burst of investor pressure on Friends' board can make a deal happen. But even investors who wanted Friends to talk to Flowers believed the price tag was too cheap.

Friends Provident shares fell 11 per cent to 116.5p yesterday after Flowers said it would not increase its proposed cash offer of 150p a share, or 144p without the proposed dividend.

Flowers has tried to get Friends Provident to enter talks based on its proposal, submitted last month. But the insurer's board has refused to talk to Flowers. The buyout firm revealed details of its proposal, including its financial backers, last week, and did the rounds of Friends' investors making the case for its offer.

The buyout firm, headed by the former Goldman Sachs partner Christopher Flowers, has stalked the insurer since late last year and built a stake of 2.7 per cent. Flowers made an initial approach at 175p in December, which was rebuffed by the company, then in the middle of a strategic review. Flowers bought its shares at an average price of 155p a share, with the highest price at 165p a share, and revealed its stake on 21 January.

After Friends complained that uncertainty over Flowers' intentions was disrupting its business, the Takeover Panel told Flowers two weeks ago to make a firm offer by 30 April.

Some Friends investors had urged the board to open talks to get Flowers to increase its price. That option looks unlikely after Flowers' ultimatum yesterday.

"JC Flowers wishes to confirm that it does not intend to increase the terms of its proposal above 150p a share. Furthermore, in the event that the board of Friends Provident does not enter into discussions with JC Flowers prior to the close of business on Friday 18 April, it is JC Flowers' intention to formally withdraw its proposal," the buyout firm said.

If Flowers withdraws its proposal, it would have to wait six months before approaching the company again under takeover rules. Friends is without a chief executive now, but Trevor Matthews, head of life and pensions at Standard Life, will be installed in July.

Flowers believes shareholders have the option of taking cash now or sitting out an unforgiving climate for UK insurers. Friends thinks investors are patient enough to reap the benefits of its strategic review rather than selling out too cheaply. The company is in talks with potential buyers of its stakes in the Lombard, F&C and Pantheon businesses.

Friends has languished since its attempted merger with Resolution, the closed life-fund business, was hijacked by Pearl Group, which forced Resolution to sell out. Following the merger's breakdown, Friends' chief executive, Philip Moore, resigned in November.