Friends rejects $7 bln JC Flowers takeover offer

By Chris Wills and Steve Slater

LONDON (Reuters) - British insurer Friends Provident (FP.L: Quote, Profile, Research) rejected a 3.5 billion pound ($7 billion) cash takeover proposal from U.S. private equity firm JC Flowers because it "significantly undervalues" the firm, Friends said.

On Monday, Friends said it received the 150 pence per share indicative proposal last Thursday and Flowers had indicated the offer price would be reduced in the event that Friends paid its 2007 final dividend of 5.3p a share at the end of May.

Friends said the proposal "does not represent a basis for discussion", signaling the two sides have not held talks.

By 11:15 a.m. EDT, its shares were up 2.8 percent at 123.4 pence after hitting 125.8p, reflecting an expectation that Flowers would return with a modestly improved offer, dealers said.

"I would be surprised if a higher offer didn't come," said Peter Eliot, an analyst at MF Global. "I don't think that will be Flowers's final offer, there's a lot more value in the business than that."

A spokesman for Flowers said it was digesting the swift reaction from Friends and considering its options.

Flowers has been circling the troubled insurer for months, and said in January it might make an offer.

It was considering paying 175p at that time, a person familiar with the situation had said, but was rejected by Friends whose shares have fallen sharply since.