FSA launches inquiry into Resolution's Cowdery

Watchdog investigates 'certain actions' at the time of the takeover by Pearl
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The Independent Online

The Financial Services Authority is investigating the founder of Resolution, Clive Cowdery, and four other former directors at the financial services buyout vehicle's eponymous predecessor over "certain actions" at the time of the original firm's £5bn takeover battle with Hugh Osmond's Pearl Group in 2007.

Resolution Limited, the investment vehicle that Mr Cowdery listed last December, raising £650m for acquisitions in the process, said yesterday that it would not complete any deals while the inquiry was ongoing.

A total of five former executives at Mr Cowdery's first venture, Resolution plc, including Mr Cowdery himself and Mike Biggs, who is now chairman of Resolution Ltd, are being investigated by the City regulator. The company said the FSA is investigating the executives over "certain actions" conducted between October 2007 and May 2008, the period between Pearl's first bid and the deal's completion.

The other former directors being investigated are now working at Resolution Operations, a private company that provides services for Resolution Ltd. They include the chief financial officer, Jim Newman, the head of mergers & acquisitions, Ian Maidens, and the head of operations, Brendan Meehan. That leaves Resolution Operations' chief executive, John Tiner, ironically a former chief executive of the FSA, as the only senior executive not being investigated.

Resolution Ltd, which said it hopes for a "swift" conclusion to the inquiry, said the investigation will put any acquisitions on hold. Analysts said this is likely to deter investors, and Resolution's shares fell by 15 per cent.

"Resolution Ltd is a cash pile with an M&A [mergers and acquisitions] strategy. This development means that the M&A strategy cannot be executed until the situation is resolved favourably," James Pearce, an analyst at Cazenove, said. "Although some investors may view a cash pile with no solvency issues as preferable to mainstream life companies, the investment case has at least temporarily been removed."

Resolution plc, which specialised in buying life insurance portfolios that were closed to new business – so-called zombie funds – initially rejected a takeover offer from Pearl in October 2007, then agreed to be bought by rival Standard Life, before in November 2007 succumbing to an improved bid from Pearl, which had bought up a stake of about a quarter of its shares in the market. The deal closed in May 2008.

The company and the FSA declined to comment further on the investigation, citing confidentiality. "We note the announcement by the firm, which was necessary in order for it to fulfil its obligations under the listing rules," an FSA spokeswoman said. "As is our usual policy, we will not be commenting on an ongoing investigation."

Mr Cowdery sold his 3 per cent stake in Resolution for about £145m in Dec-ember 2007. The other directors being investigated, apart from Mr Biggs, also sold shares in the company at that time. Resolution said yesterday that these share sales had been examined by lawyers at the time, and were designed to head off a possible increase in capital gains tax on such sales that was being considered at the time by the Government.

Mr Cowdery braved one of the worst markets for initial public offerings when he listed Resolution Ltd in December, after deciding the need to have cash and currency to do deals was stronger than hitting the best value for the IPO.

Mr Cowdery, the former head of GE's primary insurance operations in Europe, created Resolution Life in 2003. He then led a reverse takeover of Britannic, which gave his company its first stock market listing in 2005, and ran the combined company until the completion of the Pearl deal, which saw him sell the business but not the name.

Resolution Ltd has positioned itself to take advantage of an expected increase in M&A opportunities in the financial sector. Many fund managers' share prices have tumbled and banks, bailed out across Europe, may seek to offload assets such as life insurance businesses as they restructure, creating a mix of assets for sale at low prices that Mr Cowdery views as targets.