Resolution and Friends move to protect deal

Resolution Life and Friends Provident yesterday sought to frustrate any attempt by Hugh Osmond's Pearl to wreck their £8bn merger plans.

Pearl has built up a 16 per cent stake in Resolution and has said it is mulling a cash bid for the company, set up and chaired by Mr Osmond's bitter rival, Clive Cowdery.

But yesterday Resolution and Friends sought to prevent any attempt to block their deal by changing their terms so Resolution now only needs 50 per cent support from its shareholders.

Previously the two companies had planned an all-share "merger of equals" that would have seen Friends acquiring Resolution by a "scheme of arrangement" – a tax-efficient way of accomplishing a deal.

This would have needed the support of 75 per cent of Resolution shareholders (who vote), but only 50 per cent of Friends Provident's.

However, the two companies have now turned the deal on its head with Resolution acquiring Friends by the same means. That requires 50 per cent of Resolution shareholders to back the deal and 75 per cent for Friends.

The two sides yesterday stressed that the change was technical and would not alter the terms of the deal. However, by flip-flopping the merger, it makes it all but impossible for Pearl to block the transaction. To break it up now, it will have to bid.

The two also reiterated a forecast of annual cost savings of £100m from the deal, but Resolution lifted its target for cost savings from the merging of its life funds in 2008 to £250m from £150m.

Friends chief executive Philip Moore said: "We are getting on with the merger. What this does is stop a large shareholder of Resolution who is also a competitor from just blocking the deal.

"There is a lot of value to be created as a result of this deal and I remain confident that it will go ahead."

Mr Cowdery was also talking up the deal's prospects, saying: "We want to press ahead with this deal to create Friends Financial. We have signed a merger agreement, but we have made clear we will consider any firm offer."

Both sides remain implacably opposed to Pearl entering the fray, and Resolution could be expected to resist an attempt by Pearl to table an indicative offer conditional on being allowed access to Resolution's books.

Pearl yesterday said that the announcement "reinforces our belief that the merger proposal will not maximise value for shareholders".

A Pearl spokesman pointed out that half of the savings from Resolution's fund merger in 2008 would go to Friends Provident shareholders as a result of the two group's merging.

But Mr Cowdery dismissed this criticism, saying: "It was taken into account when we structured the deal with Friends."

Friends shares finished down 2.9p at 169.2p while Resolution closed down 8.5p at 617.5p.