UPDATE 3-Friends invites Resolution to merger talks

* Friends proposes buying Resolution and seeking more deals

* Structure of proposed merged company key obstacle to deal

* Friends shares down 0.7 pct, Resolution up 4.2 pct

(Adds further details) By Myles Neligan

LONDON, July 17 (Reuters) - UK life insurer Friends Provident FP.L unveiled an outline deal to join forces with financial sector buyout firm Resolution (RSL.L), triggering fresh talks between the pair just four days after Resolution's initial takeover plan went sour.

Resolution said on Friday it would enter discussions over Friends' proposal, under which the insurer would buy Resolution, creating a new takeover vehicle devoted to consolidating the UK life insurance sector.

Friends' shares closed 0.7 percent lower at 71 pence, while Resolution's shares rose 4.2 percent to 91.5 pence.

On Monday Friends had rejected an all-share takeover approach from Resolution as too low, and also expressed reservations about the buyout firm's corporate structure, which it described as "significantly different from recognised public company best practice." [ID:nLD542208]

SMALL INVESTORS

Resolution, founded last year by entrepreneur Clive Cowdery to buy life insurers and asset managers, is based in Guernsey for tax purposes, and contracts out its operations to a London-based partnership which includes its senior executive team.

A Friends spokesman said the group's merger plan would create a transparent UK-domiciled company which would be more in the interests of the insurer's 750,000 private shareholders.

"Friends have put out what I'd say are very sensible proposals, albeit unpalatable to Resolution's management," Shore Capital anlayst Eamonn Flanagan said.

"They're aimed at features of Resolution's structure which a number of people are uncomfortable with."

A Resolution spokesman said reaching a compromise regarding the enlarged company's structure would be pivotal to the success of the merger talks.

"We would need to be persuaded that (Friends' proposal) is the right structure but we welcome the fact that Friends Provident have recognised the value opportunity to shareholders from the consolidation of the sector," he said.

Earlier on Friday Resolution issued a statement defending its structure, saying it was designed to make it easier to return capital to shareholders, and had the support of its institutional investors.

The new company would appoint Resolution founder Clive Cowdery as executive deputy chairman with responsibility for takeovers, while Friends' Chief Executive, Trevor Matthews, would hold the same role. (Editing by Greg Mahlich)