Following a lengthy courtship, with a blushing Friends Provident spurning the amorous whispers and lewd suggestions of Clive Cowdrey’s investment vehicle Resolution, the insurer has finally agreed to a takeover.
Many private investors will be sitting on a paper loss on their Friends Provident holdings and will have to decide whether they want to throw in their lot with Resolution or take the cash. Friends floated at 225p in 2001. The bid values the shares at 79.4p, a small premium on Monday’s closing price of 74p.
Friends Provident shareholders will receive 0.9 shares in Resolution for every 1 share they hold in Friends – beating the previous Resolution offer of 0.8 shares per Friends share.
Small shareholders will have the opportunity to opt for cash. The first 2500 shares of any holding can be encashed for 79.4p per share. The cash for this offer comes from the £600m Resolution raised at its IPO in December 2008.
It should be noted that currently Resolution does not have a full listing for its shares, so private investors wishing to sell could struggle to do so if the listing does not occur immediately after the takeover.
Friends CEO Trevor Matthews concluded trading conditions were ‘tough’ as he reported a 38% shrink in underlying profits for the first half of 2009 while maintaining an interim dividend of 1.3p.
Resolution believe they can unlock value in the life assurance and asset management sectors and are expected to make further deals, with Scottish Widows and Clerical Medical mooted as potential targets.
Friends Provident has now concluded that Resolution’s governance arrangements, business model and alignment with investors reflect and support its objective to create value for public market investors from the restructuring of financial services businesses.
Question marks remain around Resolution’s corporate governance structure, which Friends described as ‘totally inappropriate’ when rejecting previous offers. For Friends at least, the increased offer has helped to settled their fears.
A major sticking point had been Resolution’s plans to award its management 10% of any profits accruing from their restructuring, but a hurdle rate of 4% above 3-month UK gilt yields has been introduced, so shareholders can benefit before Resolution is able to charge fees.