Friends and Resolution start £8.3bn merger talks
Two of the UK's biggest life insurers - Friends Provident and Resolution - have confirmed they are in talks over a possible £8.3 billion merger.
Resolution, the UK's biggest manager of closed life insurance funds and the remnant of the old Birmingham-based Britannic Assurance, is seen as a good fit for Friends because cash generated from its extensive book of life policies could be used to fund an aggressive increase in business.
However, rival bidders may yet disrupt the tie-up, with the French insurance giant Axa and Standard Life among potential candidates, City commentators said.
A combination of Friends and Resolution is likely to spark further consolidation in the life insurance sector, putting pressure on Standard Life to do a deal of its own.
Friends' shares closed yesterday eight per cent, or 14.6p, higher at 201p while Resolution gained one per cent, or 7p to close at 636p.
Friends, which is the majority owner of asset manager F&C, sells life protection, income protection, pensions and investment products for individuals and corporate clients throughout the UK.
The merger, if agreed, would see Friends Provident shareholders own 49.1 per cent of the new company, with Resolution investors holding the rest.
Resolution has a stock market value of around £4.3 billion, slightly bigger than Friends Provident at £4 billion.
FTSE 100 Index-listed Resolution has grown at a rapid pace, including through the acquisition of Abbey National businesses including Scottish Mutual, Scottish Provident and Abbey National Life.
However, it is thought to have found it harder to land big deals after Prudential and Scottish Widows reportedly rejected approaches to sell their closed-life fund businesses. A statement said the "complementary fit" of the two companies extended to "products, customers, distribution, financial profile and management".
It added that potential synergies arising from a possible merger will reflect the "already highly efficient nature" of Friends Provident's back office and Resolution's recent outsourcing agreement with Capita, which will commence next month. The statement did not provide further details.
Resolution said in May that the Britannic offices at Wythall are to close with 450 of the 780 staff employed there to be transferred to Capita while the remaining 330 remain with the company.
The potential deal would create a group larger than Standard Life and only marginally smaller than Legal & General.
Tim Young, an analyst at Collins Stewart stockbrokers, said: "Friends Provident was going nowhere at a rapid pace and Resolution will - as it did with Britannic and Royal & Sun Alliance's UK life business - deliver significant value to shareholders."
Friends Provident employs about 5,000 people with offices in Exeter, Dorking, Salisbury, Manchester and London.
The group is led by Philip Moore, who took the helm in January after joining the company in 2003 as group finance director.
He is likely to be offered the job of deputy chief executive in the enlarged firm, with the opportunity to replace Resolution boss Mike Biggs in the future.
It is not clear whether Resolution chairman Clive Cowdery, who set up the business with £500,000 of his own money in 2003, will be chairman. Sir Adrian Montague is chairman of Friends Provident.
One obstacle to a deal could be the future of F&C, which is majority owned by Friends and has around £104 billion of funds under management. A report at the weekend said recent asset management sales suggested a buyer might be prepared to pay more for outright control.
Yesterday's announcement took the trade union Unite (formed by the merger of theT&GWU and Amicus) by surprise. "Unite has recognition in both companies and yet, disappointingly, the announcement has come as a complete surprise," financial sector negotiator Graham Goddard said.
"We have asked for an urgent meeting at senior level and we will be asking for transparency and full information to respond to staff's natural fears of potential job losses and site closures."
