Friends Provident policyholders in line for £2,000 payout in £4bn float

The board of Friends Provident, the mutual life insurance group, yesterday agreed to go ahead with plans for a £4bn stock market flotation in a move that could lead to windfall shares worth £2,000 on average for each of its two million with-profits policyholders.

Keith Satchell, the chief executive, said that the decision to demutualise had been prompted by a belief that there would be further consolidation in the savings industry.

He said that Friends Provident needed the flexibility to participate in this shake-out by being able to offer stock as part of a merger or acquisition deal. "We are now in a position where the top 10 are commanding the market place. We have just got ourselves into the top 10," he said.

Mr Satchell denied that the decision was prompted in any way by last week's decision by Gordon Hart, the carpetbagger, to switch his attention from Scottish Provident to Friends Provident.

Nevertheless, the decision by the company to shed its mutual status 168 years after the society was set up by Quakers in 1832 is a blow to Standard Life, the Scottish-based life insurance giant, which is fighting attempts by carpetbagger Fred Woollard to force it to demutualise.

"We have always said we are not wedded to mutuality. Our key is to give the customers what they want," said Mr Satchell. "We have looked at our mutual status regularly over the last three years. We kicked off a review at the turn of the year and decided that against the background of the changes in the market place, a listing would provide a more flexible structure to pursue our strategic goals."

It is expected that the formal vote approving the demutualisation scheme will take place next summer, with a view to completing the listing before the end of summer 2001. The group, which also plans to raise money at the time of the listing by offering stock to institutions, expects that it will go straight into the FTSE 100 index of leading UK shares.

Yesterday's decision was unexpected, although many in the industry have long had Friends Provident down as a likely candidate for demutualisation at some stage.

For a mutual, the group has been uncharacteristically aggressive on the acquisitions front, having snapped up London & Manchester, the quoted insurance group, in 1998 and more recently Ivory & Sime, the fund management firm. The group has £38bn under management.

The decision to convert comes after a year of spectacular growth. In 1999 Friends Provident's total net premium income rose by 75 per cent to £3.4bn. Over the past four years the group has almost doubled its market share from 1.7 to 3.3 per cent. Friends Provident is being advised by Merrill Lynch, the investment bank.

Yesterday's move will inevitably lead to speculation that another financial institution may now seek to mount a takeover before the group makes it to the market.

However, analysts said that management seems determined to remain independent and would rather wait until the group was fully listed before they would consider talking seriously to potential merger partners.