Standard Life mulls last-minute bid in battle for Resolution

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Standard Life's potential bid for rival insurer Resolution was finely balanced last night as it workedtowards getting a recommendation from the Resolution board ahead oftoday's deadline.

The Takeover Panel has given Standard Life until 5pm today to make anoffer to break up Resolution's agreed merger with Friends Provident.

Standard Life is considering an offer with the reinsurance giant Swiss Re and has made it clear in statements that it wanted to discuss a possible offer with the Resolution board. It is understood that Resolution has not yet received a formal offer letter.

The Scottish former mutual would get Resolution's active businesses, including Scottish Provident, while Swiss Re would combine Resolution's closed funds with its existing business in that sector.

A source close to Standard Life said: "If there is one thing we won't do, it is to overpay."

Resolution and Friends Provident agreed an all-share merger to form Friends Financial in July, but still have to gainshareholder approval. Hugh Osmond's closed-funds operation, Pearl Group, has already tried to break up the deal with a 691p-a-share bid for Resolution, which was rejected.

Resolution and Friends Provident yesterday proposed a £2bn return of cash to woo investors to support their merger. They are targeting a £1bn return of capital to shareholders next year from internal cash resources and new debt if required. They also plan to return a further £1bn by April 2009 from selling lower-return Resolution assets.

Pearl attacked the proposals, saying there was no reason why Resolution's surplus capital and proceeds from selling its assets should be shared with Friends Provident shareholders.

With its bid already on the table, Pearl is free to increase its offer after tomorrow's deadline, but would have to act quickly because shareholders will vote on the Friends Financial deal in the next few days.

Pearl is bidding in cash with its partner Royal London. A bid by Standard Life and Swiss Re would be mostly cash but would also include Standard Life shares.

Pearl is Resolution's biggest shareholder with a 16.5 per cent interest in its rival and has said it will vote against the Friends Provident merger. Half its holding has been in the form of a forward purchase contract, but yesterday it announced it had bought the remaining shares at 622.17p.

One observer said Standard Life would have to make an offer requiring 75 per cent shareholderapproval, which couldbe extremely difficult if Pearl used its stake tovote against.

Friends Provident yesterday announced sales figures for the first nine months of the year. Life and pensions sales rose 21 per cent, with its international business growing 38 per cent.

Shares in Standard Life and Friends Provident closed up more than 1 per cent while Resolution's stock fell, indicating the market suspects Standard Life will not bid.