LONDON, Augt 11 – British insurer Friends Provident agreed on Tuesday to a takeover by investment group Resolution after an improved offer worth 1.858 billion pounds, boosting a sector damaged by the financial crisis.
Resolution was set up to try and lead consolidation in Britain\’s insurance sector and Friends is its first major acquisition in its bid to acquire three to four insurers over the next few years.
Friends chief executive Trevor Matthews said that the insurer looked "forward to playing a leading role in industry consolidation".
The takeover also comes amid a tentative recovery for big insurance companies, which have been hard hit by the global economic crisis and have put in place painful cost-cutting programmes including massive job cuts.
Meanwhile the acceptance by Friends, which specialises in life insurance and pensions, comes after it had turned down three other approaches by Resolution since July.
"Resolution and Friends Provident believe that consolidation is both desirable and inevitable given the fragmentation, complexity and low returns in these sectors," the pair said in a joint statement.
Resolution said its offer, worth 1.858 billion pounds (2.165 billion euros, 3.059 billion dollars), is based on the investment group\’s closing share price of 88.25 pence last Friday.
The deal meanwhile values Friends at 13 percent higher than its market value last Friday.
Following Tuesday\’s announcement and after investors had also digested news of a drop in Friends\’ earnings, the insurer\’s share price showed a gain of 0.67 percent to 75.5 pence on London\’s benchmark FTSE 100, which was up a quarter of a percent in morning deals.
Resolution is offering 0.9 shares for each Friends Provident share. As part of the deal, each Friends shareholder will be able to accept 79.4 pence for each share up to a total of 2,500 shares.
The maximum cash amount offered by Resolution is 500 million pounds, or about 27 percent of the deal\’s total value.
"It would appear that putting some cash on the table sufficiently sweetened the offer," said ETX Capital trader Manoj Ladwa. He added that a group next on Resolution\’s list could be insurer Scottish Widows, owned by LBG, the bank recently rescued by the British government.
Resolution on Tuesday said that it expected to follow up its takeover of Friends with further transactions.
"We are delighted to have reached agreement with the board of Friends Provident," said Resolution chairman Mike Biggs.
"We are excited by the potential for our proposed restructuring of the UK life assurance and asset management sector and believe the acquisition of Friends Provident is an excellent first step," he added.
Friends Provident has 2.5 million policyholders and had 7.7 billion pounds in pension funds under management in the first half of 2009.
Formed in 1832 as an insurer for Quakers, it currently employs 3,600 staff.