An industry source said yesterday that the deal between the two companies was far from a foregone conclusion. Other bidders, including Abbey National and Prudential, were still lurking in the wings.
Despite the presence of other potential bidders, Sun Alliance remains the hot favourite to take over Friends Provident and is understood to be ready to clinch a deal in the next few days.
Analysts said Sun Alliance needed to do clinch the deal to offset problems caused by the loss of a general insurance contract with Halifax Building Society last year.
The quoted insurer has also confronted tough times on its life and pensions side with premiums of pounds 685m, down from pounds 711m in 1994.
By comparison, Friends Provident achieved sales worth pounds 1.16bn in 1995, a smaller decline on the pounds 1.18bn reached the previous year. Sun Alliance is hoping to use Friends Provident and its name to build up its credibility on the life and pensions side, especially among independent financial advisers. An estimated 40 per cent of its premium income comes through its 500-strong direct salesforce.
However, one industry observer warned that, despite hopes of a deal being struck, Sun Alliance could still find itself being crowded out: "My comment would be, 'Remember Clerical Medical'."
He added: "For weeks, everyone assumed that NatWest had a deal sewn up to take Clerical Medical over. At the final moment, it was Halifax that stepped in and made a successful pounds 700m offer. These things aren't over until the deal is signed and sealed, as NatWest discovered to its cost.
"The key points at issue for Friends Provident, as they were for Clerical Medical, are not just the continuation of the name, but that of the existing management structure. It is highly likely that Sun Alliance will be aware of this."
The battle for Friends Provident comes amid intense takeover speculation surrounding mutal building societies which are planning to float on the stock market.
Woolwich Building Society is trying to stave off takeover bids from predators hoping to step in before it succeeds in its pounds 3bn planned stock market flotation next year.
Royal Bank of Scotland, long signposted as a potential bidder for a suitable building society, was yesterday reported to be among the companies chasing Woolwich. RBS joins Prudential and a number of other institutions, including tobacco giant BAT, known to be interested in acquiring a society.
Meanwhile, Alliance & Leicester, tipped by some industry insiders as another potential takeover target for Prudential, yesterday denied ever being approached by the UK insurer.
"We are completely committed to our flotation process and we have had no contact with Prudential," a spokeswoman said. Alliance & Leicester is planning a pounds 2.5bn stock market listing next year.
Government plans to strengthen building societies against gradual erosion by de-mutualisation were last night defended by Angela Knight, Economic Secretary to the Treasury.
She said new proposals to give greater economic freedom to societies and greater protection against takeovers should help dampen interest from outside predators.
However, speaking on BBC1's Panorama, Mrs Knight warned that it was up to the soicieties themselves to prove to members that there were advantages in staying with the existing structure.Reuse content