Pricing trims windfalls from Friends Provident

Friends Provident, the mutual life insurer planning the second-largest UK initial public offering this year, yesterday unveiled a prospective share price range at the lower end of expectations.

The society, which published its prospectus yesterday, said its flotation on 9 July would be priced at 210p to 270p a share. This compares with a previous range offered by its advisers, Merrill Lynch, of 225p to 270p. The new level, which values Friends Provident at a mid-price of £3.79bn, slightly reduces the windfalls that will be paid to 1.7 million policyholders.

Ordinary members will receive 200 shares each, worth on average £478 in total, compared with an earlier estimate of £495. More than 1 million with-profits policyholders will receive extra benefits, with those who have held a with-profits policy for 20 years in line for a windfall approaching £10,000.

The insurance industry has had a rocky ride over the past year due to the negative returns on the stock market, but Friends Provident denied that the price had been lowered because of pressure from potential institutional investors.

Keith Satchell, chief executive of Friends Provident, said the reason was to attract as many interested parties as possible. "We want to optimise demand relative to price, and we will be on the road for the next three weeks to get more people interested in the offer," he said.

The society's flotation, which will mark its entry into the FTSE 100, has already attracted institutional interest. It is thought to be on track to raise £1.4bn of new cash in addition to its flotation.

Eureko, the European life insurer in which Friends has a small stake, will invest £200m for 5 per cent of the demutualising company. Banco Comercial Portugues, Portugal's largest listed bank and another shareholder in Eureko, is part of another group of insurers putting up another £200m.

As well as making the offer price more attractive to institutions, Friends Provident is offering 2.5 million members, employees and customers a 10 per cent discount in the share offer. However, it has instigated a 5 per cent penalty ­ known as a market value adjuster ­ to try to deter carpetbaggers from cashing in their policies before the July flotation.

Friends Providentvowed to remain independent, but it has been dogged by speculation that it will be snapped up by a larger rival once it has resigned its mutual status.

One analyst said: "It is a tasty morsel with a good brand name and a successful pensions business, which someone like Barclays is very likely to want."

The society plans to use the proceeds of the fund raising to strengthen its reserves and improve its credit rating from double to triple A.

The move is likely to boost its new business because it will be more attractive to independent financial advisers, many of whom do not recommend clients without this level of financial strength.