Shares in Standard Life rose more than 14 percent on Monday after the former mutual insurance firm pulled out of the battle for Resolution, handing victory to rival suitor Pearl.
Resolution, Britain's sixth-largest life insurer had hoped for a tie-up with Standard Life and its board dropped plans to merge with Friends Provident to recommended Standard Life's cash-and-shares bid.
But it now faces a 4.9 billion pound ($10.2 billion) cash takeover by bitter rival Pearl.
Already Resolution's top shareholder, Pearl tightened its grip on Monday, taking advantage of a drop in Resolution shares -- trading below the level of its 720p per share bid -- to raise its stake to 26 percent from just over 24 percent.
The balance of probability is that's the end of it now, analyst Trevor Moss at MF Global said.
As things stand, Resolution is Pearl's at 720p.
At 1315 GMT on Monday, the first trading day after Standard Life's withdrawal on Sunday, its shares were up 7.3 percent at 261.5p, pulling the stock back to levels before the formal offer as investors heaved a sigh of relief and hedge funds unwound short positions.
Standard Life, whose bid was trumped by Pearl, had hoped to restructure its approach to woo investors and sidestep its rival's potentially blocking stake. A 13 percent drop in its share price, however, gave it little choice but to withdraw.
Shares in Resolution were down 2.4 percent on Monday, dipping below the value of Pearl's bid to 706p, as hopes of a battle faded and investors braced themselves for a takeover next year.
After four months of merger talks and an increasingly acrimonious takeover battle, Pearl and Resolution are now expected to meet in the coming days to hammer out final details -- including who will run the new firm.
Both firms have focused on consolidating life funds which no longer write new business, but Resolution's entrepreneurial chairman, Clive Cowdery, is not expected to stay on at the group if Pearl, run by arch-rival Hugh Osmond, takes control.
Clive has hugely developed plans for the future, but will not be discussing them until certainty for Resolution shareholders has been delivered, a Resolution spokesman said.
The Pearl move is also likely to result in Resolution's delisting, as it is broken up between Pearl and partner Royal London -- marking the end of an era for the insurer which doubled in size twice since 2005, first merging with Britannic and then buying the life businesses of UK mortgage bank Abbey.
Under the current deal with Royal London, Pearl will sell the mutual most of Resolution's open business, concentrating on the closed funds. It is not clear whether it could also sell on other businesses -- including Resolution's asset management.
Standard declined to comment on Sunday on whether it could be interested in the fund management arm.
Swiss Re, which would have bought half of Resolution's closed funds under the Standard deal, is separately considering its options. One source close to the matter said it could wait in the wings, should Pearl consider fund sales.
For Standard Life, which said from its listing in July 2006 that it was focused on organic growth, the task ahead is to convince shareholders that it has the potential to grow alone after the surprise foray into M&A.
Crombie said on Sunday the insurer had a wealth of opportunity and strong shareholder backing.
There was nothing wrong with their organic growth strategy, what they were looking to do was improve on it, MF Global's Moss said. But it does beg one question - if they felt the need to get into other areas of the market and distribution, what are they going to do now to fill those holes? (Editing by Quentin Bryar and Matthew Tostevin)