Resolution in $3.1 billion Friends buy, seeks more deals

By Myles Neligan and Clara Ferreira-Marques

LONDON (Reuters) - Britain's Resolution, an acquisition vehicle founded by tycoon Clive Cowdery, clinched the first of a hoped-for trio of deals with the 1.86 billion pound ($3.1 billion) takeover of insurer Friends Provident.

Resolution, created last year to buy life insurers and asset managers, said on Tuesday Friends Provident's management had backed an improved bid giving shareholders 0.9 Resolution shares per Friends share, a month after rejecting an initial offer.

Cowdery told reporters Resolution was looking for at least two more acquisitions which would be merged with Friends and floated on the stock market after two to three years of restructuring.

The group's next takeover targets would probably be life insurers rather than asset managers and could include local subsidiaries of foreign insurers and local subsidiaries of banks or large British insurers that may not wish to continue to focus on the UK market, Cowdery said on a conference call.

Future deals would be financed by raising funds from shareholders, Cowdery said, estimating the group's 660 million pound stock market listing in December had raised only a fifth of the total sum investors were willing to commit.

"We remain confident that there is substantial capital that can be attracted into the restructuring of the life sector," he said.

PROFITS SLUMP

Resolution's bid values Friends -- Britain's sixth-biggest life insurer and an acquisition target since it demutualised and listed in 2001 -- at 79.4 pence per share, a 6 percent premium to Monday's closing price, but little more than a third of the 225 pence at which it was floated.

Friends, which also reported a lower-than-expected first half profit, saw its shares rise 1.1 percent to 75.9 pence by 1155 GMT (7:55 a.m. EDT), off earlier highs, while Resolution shed 3.6 percent to 85.25 pence.

Manoj Ladwa, a senior trader at ETX Capital, said Resolution's potential targets included Scottish Widows, the life business of Lloyds Banking Group Plc and the British life units of companies such as Prudential Plc, Aegon NV, Axa and Zurich Financial Services.

"There's a lot of rumors flying about. The one that I would give a bit more credence to would be the life companies belonging to Lloyds," said Shore Capital analyst Eamonn Flanagan, citing forthcoming capital rule changes which could prevent Lloyds from counting its life businesses toward its capital base.

PAY DEAL

The Friends buy marks a critical first deal for Cowdery's Resolution as it seeks to exploit an anticipated bout of insurance industry consolidation, driven by falling sales due to a weak economy, stricter capital rules and tax changes.

Resolution also said it was considering changes to its top executives' pay arrangements, which had been cited as an obstacle to a deal with Friends Provident.

Resolution executives currently stand to get 10 percent of any profit on its takeovers over and above the risk-free rate, based on the yield on three-month government bonds.