Resolution Life rejects £4.5bn offer from Pearl

Resolution Life yesterday threw out a £4.5bn cash takeover proposal from rival closed-life insurance operator Pearl in favour of its preferred all-share merger of equals with Friends Provident.

The 669p-a-share indicative offer – that is conditional on a recommendation from Resolution's board – was 11p lower than Resolution's closing price of 680p yesterday, a level at which it has been trading above for several days.

It also emerged that Pearl has agreed to sell parts of Resolution – including Scottish Provident and its Isle of Man life insurance arm – to the mutual insurer Royal London for £1.25bn if its indicative bid is successful.

Royal appears to have outmanoeuvred Standard Life, which had also been keen on Scottish Provident and had been widely expected to bid in tandem with Pearl. Standard was last night said to be "considering its options".

They could include tabling a counter bid with a third party. Last night it emerged that at least one other insurer has sought access to Resolution's dataroom containing financial information on the group that has to be made available to possible counter-bidders because of the planned merger with Friends.

Swiss Re has a substantial closed life insurance book and has been acquisitive in the UK while other insurers have been closely watching the situation including AXA, although it has long been suggested as a more likely bidder for Friends Provident.

Resolution said the proposal from Pearl undervalued its business and its prospects if combined with Friends Provident.

Hugh Osmond, the boss of Pearl, made the tentative offer on Tuesday in a meeting with Clive Cowdery, Resolution's chairman. However, the two men are known to be rivals and Mr Cowdery would be unlikely to sell to Mr Osmond without putting up a fight, even had the latter's approach been at a premium to the current share price.

Resolution and Friends will hold extraordinary general meetings on 5 November to allow their shareholders to vote on the deal, with 29 November set as the day for the transaction to become final.

Pearl has been stalking Resolution since Resolution and Friends Provident agreed their merger in July and has built up a 16.5 per cent stake.

The 669p proposal – that includes Resolution's 9p interim dividend – was the lowest Pearl was allowed to make under takeover rules because it was the highest price Pearl had paid for Resolution shares in the market.

Pearl said it saw its offer as the start of talks with Resolution.

"The issue is value and the perception of value. It is shareholders who will decide that. Now is the time for further discussion," the company said.

Pearl said the real value of the merger with Friends to Resolution shareholders was 575p a share and that its offer was a premium of 16.3 per cent on that price.