Resolution to restructure deal for Friends to head off Pearl
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Your support makes all the difference.Life insurer Resolution yesterday pledged to shake up its £8bn planned merger with Friends Provident in an attempt to prevent rival Pearl from blocking the deal.
Hugh Osmond's Pearl - which runs closed life insurance funds, as does Resolution - has built up a stake of nearly 16 per cent in its rival, which needs 75-per-cent support for the Friends deal to go ahead because it is being structured as a scheme of arrangement.
But yesterday Ian Maidens, chief actuary and head of corporate development at Resolution, said: "We have the right to switch the transaction to a straight offer either to Friends from Resolution, or to Resolution from Friends. That would only require 50-per-cent support. We do not want a situation where a competitor which competes with us for deals is blocking shareholders in Resolution from receiving the economic value from our merger with Friends."
Mr Maidens was speaking as Resolution began a campaign to sell shareholders on the merger, holding out the prospect of increased dividends and a share buy-back next year.
The company said it would have produced £250m in new business before tax last year and would have a leading position in the group pensions market. It is pledging £100m of synergies and has talked in glowing terms of Friends' capacity to generate new business.
Mr Maidens added: "We started out as a private equity-owned company and we have been resolutely focused on shareholder value since then. There is only one deal on the table, and that is between Resolution and Friends Provident to create Friends Financial. We think this is a good deal for shareholders."
Resolution, however, still faces a tough task in selling the Friends deal. The share prices in both companies had begun to fall before Pearl's interest became clear and hedge funds were actively buying into Resolution yesterday. They included Centaurus and Halbis Capital Management.
Event-driven funds would be expected to push Resolution to hold talks with Pearl in the hope of a cash offer, which would maximise their profits. Pearl said yesterday: "We repeat what we said last week. We don't think this deal maximises shareholder value and we would like to discuss alternative opportunities with the board. The proposal is a matter for all shareholders to vote on."
Pearl is considering an all-cash offer, chiefly funded by borrowing against future revenues from the merged business. However, analysts at Keefe, Bruyette & Woods yesterday said the current jittery state of the credit markets would not make this easy, and Mr Osmond does not yet have funding in place.
The company is expected to hold talks with Resolution. Resolution's colourful chairman Clive Cowdery and Mr Osmond have clashed in the past, and Mr Osmond was less than pleased at the former's intervention in his acquisition of Pearl.
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