Takeover of Friends Provident by Resolution 'not that far now'

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The Independent Online

Resolution, the investment vehicle run by entrepreneur Clive Cowdery, could reach agreement with Friends Provident's board over a takeover of the insurer as early as this week. However, it may face difficulties if it tries to buy the insurance assets of the state-supported Lloyds Banking Group.

Sources close to Resolution and Friends Provident have said that a further sweetened cash-and-paper offer for the group remains likely with the "distance between Resolution and Friends Provident not that far now".

Friends Provident's chairman, Sir Adrian Montague, called off talks with Mr Cowdery last week, deeming the entrepreneur's most recent offer "wholly inadequate".

But a deal remains likely. "Clive has to get this deal done quickly," said the source. "He expected to have the first deal done much earlier than this, but the FSA investigation hampered that. Price is now the only issue and it will be resolved. It has to be."

If Mr Cowdery is successful in his attempts to buy Friends Provident, the Resolution founder is thought to have Lloyds' insurance assets – Scottish Widows and Clerical Medical – in his sights.

Earlier in the year, Lloyds – which is 43 per cent owned by the taxpayer, a stake which is managed by the Government's UKFI body – appointed Deutsche Bank to review its insurance assets, with a sale of some or all of these assets thought the most likely outcome. But government sources have indicated concern about selling these assets to Cowdery's firm, which has a primary listing in the tax haven of Guernsey, and which, crucially, pays salaries and bonuses to its management on a private-equity-style basis.

Resolution's structure allows Mr Cowdery's management company to receive a 0.5 per cent fee, as well as 10 per cent share of any increase in the value of companies it acquires in the future.

A Whitehall source said: "Selling these businesses to an individual who bases himself in Guernsey for tax reasons, and who pays himself and his team such a large private-equity-style kicker for doing deals, is clearly not going to go down well. UKFI obviously operates along commercial lines and if Cowdery comes in with a lone offer, then it will be difficult to resist. But there are considerable misgivings about doing this. If it can be avoided, it will be."

Some of Resolution's largest institutional backers have also privately aired concerns about the company's primary listing in the Channel Islands.

"We expected that this could be a problem," said one leading fund manager with a stake in Resolution.

However, sources close to Resolution dismissed concerns about its Guernsey domiciliary, saying: "We don't think it will be an issue."