Resolution Life closes in on £3.5bn deal with Abbey

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The Independent Online

Resolution Life now expects to finalise a £3.5bn deal to buy the life assurance arm of Abbey from its Spanish parent bank Santander "within the next two weeks", according to sources at the company. The insurer is expected to launch a rights issue to raise up to £1.5bn in order to complete the purchase.

A deal would represent a triumph for Clive Cowdery, who founded Resolution 18 months ago and has since bought up a succession of closed with-profits funds from insurers. Abbey's £29bn of funds under management would almost double the money that Resolution currently looks after.

Abbey's life business is one of the largest remaining prizes in the closed with-profits fund business, where several companies are battling for market domination. Resolution and its rivals make their money by reducing the administration and investment management costs on the with-profits funds they acquire.

The insurer has been negotiating with Santander since the beginning of May, when the two parties announced they had entered exclusive talks over a deal. Resolution now believes all the major obstacles to a formal agreement have been cleared.

However, Mr Cowdery's rival, Hugh Osmond, whose Sun Capital business already controls about £30bn of closed life fund assets, is still hoping that a last-minute breakdown in negotiations could allow him to step in.

Mr Osmond was privately furious when Santander announced last month it would negotiate only with Resolution. He had previously been courting the Spanish bank and has since made it clear that he believes Sun Capital would be able to offer a higher price for Abbey's funds.

Mr Osmond's team believes Resolution may yet find it difficult to persuade its own shareholders to back the Abbey deal, amid confusion about whether it will be required to take on the full liabilities of the with-profits funds.

Santander is understood to have told Resolution it will not sign indemnities or warranties for liabilities such as claims of mis-selling that subsequently emerge at the with-profits fund. The unquantifiable nature of such liabilities could become a sticking point for shareholders in Resolution, which operates on the basis of strict investment criteria.

Sun Capital also hopes investors will be particularly sceptical about a Resolution rights issue because it is likely to coincide with Standard Life's planned £5bn flotation, flooding the stock market with new life insurance company equity.