British life insurer Friends Provident said on Monday it had ended talks with would-be acquirer Resolution after rejecting a fresh takeover approach from the Guernsey-based bid vehicle over the weekend.

The board of Friends Provident sees no basis for further engagement with Resolution and has terminated discussions, Friends said in a brief statement.

Analysts said Friends' decision was a setback for Resolution, founded last year by insurance entrepreneur Clive Cowdery to buy and restructure life insurers and asset managers.

The company raised 600 million pounds ($991.9 million) from investors in a stock market listing last December and Friends Provident is its first formal bid target.

Resolution's first acquisition was always going to be a tough one, but we suspect that this one is proving more difficult than Resolution imagined, Panmure Gordon analyst Barrie Cornes wrote in a research note.

The question now is whether Resolution feels it wants to force the issue against an unwilling partner.


Friends, Britain's sixth-biggest life insurer by market value, said that on Sunday, it had rejected as wholly inadequate a new takeover proposal from Resolution, two weeks after the company's first bid approach.

Under the latest proposal, Friends shareholders would have received 0.82 Resolution shares for every Friends share they held plus 500 million pounds in cash, little changed from Resolution's initial offer of 0.8 shares per Friends share, was rebuffed as too low on July 12.

By 1151 GMT, Resolution shares were down 1.9 percent at 89.25 pence, while Friends Provident shares were up 1.0 percent higher at 71.5 pence.

Friends' withdrawal leaves Resolution with the option of launching a hostile offer, bypassing the insurer's management and appealing directly to its shareholders.

Resolution declined to comment.

However, one major Friends Provident investor said a hostile approach was unlikely as it could alienate Friends' senior management, which Resolution wants to stay on to run the insurer and any subsequently-acquired rivals.

I'd be surprised if they went hostile, the shareholder said.

To go hostile would be very dangerous unless you felt sure that the operational management would be happy to stay on after the deal.


Panmure Gordon's Cornes said Friends' army of private shareholders represented another obstacle to a hostile approach, even though the two companies have large institutional shareholders in common who may support a deal.

Private investors, largely Friends Provident customers who received stock when the insurer demutualized in 2001, hold about 17 percent of the group.

A second institutional shareholder with stakes in both Resolution and Friends Provident said there was a two-thirds of a chance of a deal being struck, but stressed that Resolution would need Friends' recommendation for the tie-up to go ahead.

Friends has previously raised objections to Resolution's corporate structure, saying it allows the group's senior executives to escape full shareholder scrutiny.

Resolution is based in the corporate tax haven of Guernsey, and contracts its operations out to a London-based entity whose senior executives, including Cowdery, do not sit on the Resolution board.

($1=.6049 Pound) (Additional reporting by Joel Dimmock and Victoria Howley; editing by Simon Jessop and Karen Foster)