Pearl poised for victory in battle for Resolution

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The Independent Online

Hugh Osmond's Pearl Group last night looked set for victory in its battle to buy Resolution, its arch-rival closed life fund operator, after securing what is said to be a deal-blocking stake in its rival.

Mr Osmond's company yesterday topped Standard Life's bid for Resolutionless than an hour afterStandard Life secured arecommendation for its offer. The 720p-a-share cash bid beat Pearl's previous 691p offer and Standard Life's cash and shares bid, which stood at about 715p a share last night.

Pearl also increased its stake in Resolution to more than 24 per cent in a move that observers claimed made it impossible for Standard Life to triumph.

Standard Life's offer is structured so that it needs 75 per cent shareholder approval. Though it retains the option of restructuring the offer to need only 50 per cent of shareholder support, this would impose massive extra costs on its funding by banks.

Pearl is also said to be able to block Standard Life's planned sale of Resolution's closed life funds to Swiss Re and any changes to Resolution's tax and capital structure, all of which would require a special resolution and 75 per cent approval.

Pearl said: "StandardLife requires 75 per centapproval; we own over 24 per cent. Why would Resolution continue to recommend an offer that cannot be delivered?"

Resolution's board will meet over the weekendor on Monday to weigh the certainty of Pearl's cash against potential longer-term gains from teaming up with Standard Life. Pearl is asking for a recommendation for its offer but would go straight to shareholders if it was snubbed.

Even if Pearl did not have its potentially decisive stake, investors said its bid would be more attractive.

A fund manager who sold his Resolution stake yesterday said: "In this market, a bird in the hand is going to be very powerful, so I can't see how Resolution can do other than to support the higher offer, but we will have to see."

Resolution is Britain's biggest operator of closed life funds. Its chairman Clive Cowdery built the business from scratch by consolidating smaller life funds that its owners no longer wanted to operate. His main rival has been Mr Osmond, with whom he has a hostile relationship.

Mr Cowdery stood by the Standard Life deal yesterday, saying it represented good value for shareholders, but the board will have to weigh it against Pearl's new offer.

Mr Cowdery would not enjoy selling out to Mr Osmond. But his irritation would be tempered by nearly £150m he would make from cashing in his 3 per cent stake in Resolution – a huge return for the three years it took him to build the company.

The battle of the insurers was set off when Resolution agreed in July to merge with Friends Provident to combine Resolution's cash reserves with Friends Provident's new business operation. But Pearl, the biggest rival to Mr Cowdery in the "zombie funds" business, stalked Resolution all summer, building up a 16 per cent stake before putting in an indicative offer two weeks ago which it has since topped with two firm bids.

Standard Life came late to the deal. It was known to be interested in Resolution for months, and had considered going in with Pearl. That option was blocked off when Pearl teamed up with Royal London, a mutual insurer, as a partner to buy Resolution's active businesses. Standard Life then got together with Swiss Re, the world's biggest reinsurer, which agreed to buy Resolution's closed funds to add them to the more than 40 such funds it already operates. Swiss Re indicated yesterday that it was not prepared to up the price it would pay for the closed funds.

Resolution's recommendation of Standard Life's bid brought the deal with Friends Provident to an end. The snubbed life insurer will get a £49m break fee from Resolution.

Standard Life shares closed up 0.8 per cent. Resolution's stock rose 2.4 per cent.