Friends eyes F&C, Lombard sales, shares tumble

By Clara Ferreira-Marques and Steve Slater

LONDON (Reuters) - Friends Provident (FP.L) could sell two of its largest units and cut 600 jobs in a radical overhaul, but uncertainty over its future, a dividend cut and charges that will almost wipe 2007 profit battered its shares.

After two-and-a-half months reviewing its strategy as speculation grew, the British life insurer confirmed on Thursday that it could sell its majority stake in UK fund manager F&C (FCAM.L), as well as insurer Lombard, which targets the wealthy, and financial advisor Pantheon, marking the three as "non-core".

F&C and Lombard alone are expected to fetch at least 1.2 billion pounds ($2.4 billion) if Friends can find buyers -- three times the medium-term funding gap Friends outlined last year, when it was still paying commissions to fuel a fast-growing corporate pensions business.

Friends bought Pantheon, also focused on wealthy clients, for 33 million pounds last year, including earnout provisions.

Friends also announced plans to refocus its core UK business, cutting upfront commissions for some pensions, slashing 600 out of some 4,000 jobs, and taking a 160-million-pound charge to account for escalating problems with customers dropping out early.

That and other charges totaling 440 million pounds will leave its underlying 2007 profit at just 20 million pounds.

Friends also plans to halve its dividend as part of the overhaul it says will allow it to "live within its means".

"This is the foundation. We intend to build on it and to deliver on it as swiftly as we can," Friends chairman Adrian Montague told investors.

RUDDERLESS?

The insurer had been expected to sell at least two units in a shake-up to boost cash flow, but gave no hints on Thursday on whether there had been approaches for the businesses or the entire group. The company said a sale could take months.

F&C said separately it had not had any approaches.

"We have ruled nothing in and nothing out," Montague said, when asked about the future of businesses earmarked for a sale.

Montague confirmed the group's new Chief Executive Trevor Matthews, a highly regarded industry veteran, was not expected to join from rival Standard Life (SL.L) until July, a delay that fuelled more concerns over the insurer's direction.

"They are going to be a rudderless ship and that means investors will be begging for Chris Flowers to take Friends out," Collins Stewart analyst Tim Young said.

Former Goldman Sachs banker Chris Flowers's group said last week it had considered making an offer for Friends.