World Economic

Britain’s Resolution, an acquisitions vehicle founded by tycoon Clive Cowdery, clinched the first of a hoped-for trio of deals with the 1.86 billion pound ($3.1 billion) takeover of insurer Friends Provident.

Resolution, created last year to buy life insurers and asset managers, said on Tuesday Friends Provident’s management had agreed to back an improved bid giving shareholders 0.9 Resolution shares per Friends share, a month after rejecting an initial offer.

Cowdery told reporters Resolution was looking for at least two further acquisitions which would be merged and relisted on the stock market after two to three years of restructuring.

Resolution’s bid valued Friends — Britain’s sixth-biggest life insurer and an acquisition target since it demutualised and listed in 2001 — at 79.4 pence per share, a 6 percent premium to Monday’s closing price but little more than a third of the 225 pence it was floated at.

Friends, which also reported lower-than-expected first half profit, saw its shares rise 1.1 percent to 75.9 pence by 1155 GMT, off earlier highs, while Resolution shed 3.6 percent to 85.25 pence.

ACQUISITION TRAIL

Cowdery said he was eyeing life insurers rather than asset manager for future deals, and had a preference for whole businesses rather than books of policies.

Future acquisitions could include “local subsidiaries of foreign insurers and local subsidiaries of banks or large British insurers that may not wish to continue to focus on the UK market,” he said on a conference call instant cash advance.

Manoj Ladwa, a senior trader at ETX Capital, said potential targets included Scottish Widows, the life business of Lloyds Banking Group, and the British life units of companies such as Prudential, Dutch Aegon, French Axa, and Swiss Zurich Financial Services.

“There’s a lot of rumours flying about. The one that I would give a bit more credence to would be the life companies belonging to Lloyds,” said Shore Capital analyst Eamonn Flanagan, citing forthcoming capital rule changes which could prevent Lloyds from counting its life businesses toward its capital base.

PAY DEAL

The Friends buy marks a critical first deal for Cowdery’s Resolution as it seeks to exploit an anticipated bout of insurance sector consolidation, driven by falling sales due to a weak economy, stricter capital rules and tax changes.

Resolution said it was considering changes to its top executives’ pay arrangements, which had been cited as an obstacle to a deal with Friends Provident.

Resolution executives currently stand to get 10 percent of any profit on its takeovers over and above the risk-free rate, defined as the yield on three-month government bonds.

This hurdle rate may be replaced because efforts by the Bank of England to stimulate the economy have caused a sharp drop in the risk-free rate this year, tilting the pay structure in the executives’ favor. 

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