Buyout vehicle Resolution seems to have finally succeeded in its long pursuit of insurer Friends Provident: the latter’s board has recommended a takeover bid worth £1.87bn, a sizeable premium to its recent share price. It's an unusual deal, and the two might not look like natural bedfellows: Friends is a FTSE-100 company, founded in 1832 to offer life insurance to Quakers and employing 3,600 people; Resolution is a special-purpose Guernsey-based financial vehicle founded in 2007 that employs absolutely nobody. In agreeing to the offer, Friends said it had been persuaded of Resolution’s good intentions in terms of governance and transparency – but who has really given up most?
Under the terms of today’s deal, which is the culmination of a two-month negotiation, Resolution will offer 0.9 of its shares for every Friends share (up from 0.8 shares previously). This values Friends at about £1.87bn or 79p a share, 31% more than it was worth before Resolution came on the scene. Smaller shareholders, of whom there are about 700,000 following its demutualisation in 2001, can take cash instead. So it sounds like a reasonable offer financially, and it’s received the backing of big institutional investors. On the other hand, when you recall that Friends listed at 225p a share back in 2001, the deal suddenly starts looking a lot less good...
The tie-up is the first step in Resolution boss Clive Cowdery’s plan to shake up the insurance sector by buying three or four companies and combining them to create economies of scale (before presumably flogging them to the highest bidder and pocketing the proceeds, as he did with closed-life ‘zombie’ funds in Resolution’s previous incarnation - see MT's 'Great Escapes' feature from earlier this year). Unfortunately for him, Friends has not been terribly receptive to his advances - he first floated the idea back in 2007, so it’s taken him over two years to make the deal happen. Resolute indeed.
Friends claimed that their opposition wasn't just about cash (perish the thought); it was also down to Resolution’s opaque structure. However it reckons it has now been reassured on that score – helped by the fact that Resolution has agreed to list on the London Stock Exchange if the deal goes through, which should encourage greater transparency. It’s also apparently persuaded Resolution to limit the profits its directors stand to make – or improve its ‘alignment with investors’, as Friends puts it. So it does seem that Resolution has been forced to make some concessions in order to start taking over big public companies, which is no bad thing (assuming it actually does all this stuff).
The Friends deal will presumably give Cowdery the respectability he needs to start buying up other insurers too. But it’s a rather more complicated business than zombie funds – time will tell whether he can actually realise these supposed economies of scale...
In today's bulletin:
Friends being united with Resolution
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Women trump men in 'high status' jobs
Too much customer satisfaction can hurt profits
Cross footballer looks to score with sideline move