Friends agrees to Resolution bid

After rejecting earlier offers from Resolution, Friends Provident has finally bitten the bullet and accepted an improved approach. The 177-year-old insurer had dismissed the previous bids, saying they were priced too low, and it also had concerns over the level of dividend and Resolution's corporate structure.

The current bid will offer Friends investors 0.9 shares for every one they own and a cash alternative up to £500m for the first 2,500 shares held by its 700,000 small shareholders. It is priced at a 13 per cent premium to Monday's close shareprice of 75p.

Pressure had been brought to bear on the insurer to do the deal amid consolidation pressures in the insurance industry. Many of Friends' institutional shareholders are also investors in Resolution, an investment vehicle founded by insurance expert Clive Cowdery to buy under-performing financial firms. Friends had been restructuring its operations to cut costs as the industry struggled with excess capacity.

As a result of its financial pressures it also announced a loss of £98m for the first half of the year, missing analysts' estimates. It will pay a 1.3p dividend per share ahead of the takeover.

Resolution plans to target other insurance firms - thought to include Scottish Widows and Clerical Medical - in the wake of its Friends purchase. It will run them together to cut costs and then sell the vehicle in coming years.

WHAT THEY ARE SAYING:Andrew Hill in the Financial Times: "Friends’ proposal to combine with Resolution under the life assurer’s banner, with Mr Cowdery as executive deputy chairman, has a headline-grabbing attraction. But mergers that revolve round complex agreements about management roles are often doomed. Furthermore, you don’t have to know Mr Cowdery that well to know that the inveterate dealmaker is unlikely to last long as a salaried employee of the combined company, no matter how many titles you give him."

James Moore in the Independent: "Two weeks ago it was "no, no and thrice no" as Friends Provident appeared to slam the door on an unwanted takeover approach from Clive Cowdery's Resolution... Yesterday the very same directors were back around the table discussing surrender terms. They have extracted something from the deal, Friends shareholders will get a slightly bigger piece of the Resolution pie. But if there are any changes to Resolution's eccentric corporate governance arrangements ... they will be cosmetic at best. Mr Cowdery has won the day." ·