Friends Forever – US-FOREX.US
Like they say, fourth time’s a charm. The British investment firm Resolution has made another attempt to bid for the money-losing insurer Friends Provident, and this time a deal just might happen. The new terms stipulate that investors in Friends could receive 0.9 Resolution shares for each of their own; alternatively, the insurer’s 750,000 retail investors, who own 20% of the firm, could get up to 500 million pounds in cash. The bid represents a 13.3% premium to Friends’ closing price on Friday in London and values Friends at 1.9 billion pounds based on the price of Resolution’s shares on Monday morning. It is likely that the two sides want to reach an agreement before Friends announces its interim results on Tuesday. Shares of Friends Provident
, which was founded in 1832 and demutualized in 2001, shot up by 7.7%, or 5.4 pence to 75.5 pence on Monday morning in London. With the stock hovering just under the bid price, it appears that investors are not holding out for a higher offer. Resolution floated on the stock market last December and raised 660 million pounds to be spent on vacuuming up undervalued insurance and asset management firms in the United Kingdom. Its speciality is “zombie” insurance funds that no longer accept new business. The company, founded by insurance tycoon Clive Cowdery and domiciled in the British tax haven of Guernsey, intends to raise 3-5 billion pounds over an 18 month period for more acquisitions. Its biggest shareholder, with just under 9% of equity, is Scottish Widows, a subsidary of Lloyds Banking Group
, and the rest are other institutional investors like Aviva and Standard Life.
A source close to the situation said Friends Provident was at the “smaller end of the spectrum” for deals, and that Resolution could buy three or four more firms, including privately-owned assets and subsidiaries of banks. Resolution has been in talks with a number of vendors of insurance assets but Friends is the first one to go into the public domain because it is a listed company. One rumored acquisition target for Resolution is a division of Lloyds, possibly asset management.Barrie Cornes, a banking analyst at Panmure Gordon who has a “buy” rating on Friends Provident, calculates the insurer’s underlying embedded value at 108 pence a share, suggesting Resolution is acquiring the company at a 25% discount. Friends and Resolution had come close to a merger in 2007, but the deal collapsed when an earlier incarnation of the firm, Resolution Plc was itself taken over in November 2007 by insurance rival Pearl Assurance, for 5 billion pounds . But Cowdery later formed Resolution Ltd.andJuly 2009 saw it and Friends go back in forth with bids and counter bids, first with Resolution offering 0.8 of its shares for every Friends share, then Friends making a counter-bid, then Resolution trying again with 0.82 of its shares. All three offers were rejected. Now the board of Friends has said it believes the revised proposal has been “sufficiently improved” to justify talking with Resolution again. Friends has been losing money for the last two years, and posted an annual loss of 489 million pounds for fiscal 2008. But the total value of its assets has stayed fairly resilient, slipping by just 1% to 56.4 million pounds in 2008. Also, the company’s chief executive and chief financial officer, Trevor Matthews and Evelyn Bourke, are well-regarded by the market. Having both been in their respective positions for less than a year, Panmure’s Cornes thinks it unlikely that Resolution will push them out.