Standard Life and Swiss Re in talks to gatecrash Resolution merger

The battle for Resolution Life heated up yesterday after Standard Life saidit was in talks with SwissRe about taking on therival insurer Pearl andResolution's preferred merger with Friends Provident with a bid of its own.

It came as the Takeover Panel gave both Standard and Pearl a "put up or shut up" deadline of 5pm on 25 October to either bid or walk away for at least six months.

Swiss Re put an end to the mounting speculation that it was interested in joining forces with Standard by confirming the two sides were in talks about a possible joint bid.

The deal under discussion would see Standard fronting a cash and share offer for Resolution.

Swiss Re would agree to buy the closed parts of the business for cash with Standard taking control the Scottish operations that are still open, including those selling life insurance and pension products through Abbey, the banking group.

Standard said the majority of its part of the offer would be paid for in cash, with "the balance in new shares of Standard Life".

The company was at pains to stress that an offer "would only be made if the board of Standard Life considered that it was financially attractive and would enhance value for Standard Life shareholders over both the short and long term".

It added: "The Standard Life board looks forward to holding constructive discussions on these matters with the board of Resolution."

The statement was in part designed to reassure investors, who have become increasingly nervous at about Standard's plans. Yesterday its shares eased 9.25p to 280p. However, Standard said: "The board of Standard Life believes there are attractive potential synergies to be generated from a combination of Resolution's assets with its own operations. It further believes that such a transaction would enable Standard Life to accelerate the rate of its own organic growth by expanding the group's product range, accessing additional capital at attractive terms, adding valuable customers and broadening the group's distribution."

Swiss Re has said many times that it has been targeting takeovers of closed insurance books for its Admin Re operation. It has both the capital, back office facilities and staff to enable it to run off closed insurance companies with relative ease.

The intervention of the two companies follows last week's 660p indicative cash offer by Pearl, the life insurer owned by private investors led by entrepreneur Hugh Osmond.

The proposal, which would also pay shareholders Resolution's proposed 9p interim dividend and values the company at £4.5bn, is conditional on a recommendation from Resolution's board.

However, Resolution immediately threw it out, saying it under valued the business. The proposal was lower than the level at which Resolution's shares had been trading for several weeks previously, and such bids do not have a happy history, with both the Australian investment bank Macquarie and Nasdaq failing with "low ball" bids for the London Stock Exchange.

Pearl is partnering with Royal London, the mutual insurer, which is interested in similar parts of the business to Standard.

Royal London appeared to have outmanoeuvred Standard when Pearl put its terms in the table because it had originally expected to partner with the Scottish company.

However, it has been suggested that the Standard Life/Swiss Re combination could be preparing a bid of between 700p to 750p.

Clive Cowdery, Resolution's chairman, is thought to be in no mood to sell but would listen to offers in excess of 750p. However, a proposal close to 750p, as well as being substantially ahead of Pearl's indicative offer, could test the resolution of his shareholders.

Yesterday Mr Cowdery said he remained committed to his planned all-share merger with FriendsProvident that would create a group worth more than £8bn called Friends Financial. He said: "There is clear and substantial value in Friends Financial and our focus is entirely on completing the merger. We will not be distracted from this unless a very compelling offer is made forResolution."