Insurer Standard Life has agreed to buy rival Resolution for 4.9 billion pounds ($10.1 billion), topping a competing offer and breaking up Resolution's planned merger with Friends Provident.
After a day of intensive talks, Standard Life said Resolution's board had backed its offer of 517 pence in cash and 0.715 of new shares for each Resolution share.
That offer -- worth 715p at Thursday's close -- is worth roughly 707.5 at current trading prices, hit by a drop in Standard Life's share price, which was down almost 4 percent on Friday on concerns about the dilution to earnings from the new shares that Standard Life will issue as part of the deal.
The proposed bid is still above Resolution's current price of around 707p, though only some 3.5 percent above a competing all-cash offer from rival suitor Pearl, rejected last week.
Standard Life -- which will have to issue around 1.3 billion pounds of new shares to cover the stock portion of the takeover and issue debt -- has also struck a deal with Swiss Re, under which it will sell the reinsurance giant some Resolution assets, mostly closed funds, for 2.35 billion pounds.
Buying Resolution will transform Standard Life into one of the UK's leading life and pensions companies with about 7 million UK customers, and create an asset management business with about 191 billion pounds of funds under management.
Standard Life also said it expected to make annual pretax cost savings of at least 53 million pounds by 2010 and financial savings of 18 million pounds before tax.
The deal will be neutral to its operating earnings on a European Embedded Value basis in 2008 and accretive from 2009, the first full year of ownership, Standard Life added.
It also said that Resolution Chairman Clive Cowdery had been invited to become Standard Life's non-executive deputy chairman.
WINNERS AND LOSERS
Resolution, targeted by suitors since it announced an 8.7 billion-pound merger deal with Friends Provident in July, had previously rejected two approaches from Pearl.
Pearl, Resolution's top shareholder, said in a statement on Friday that the Standard Life proposal would expose both sets of shareholders to significant downside risks.
But having bought its 16.5 percent stake at a maximum price of 660p a share, Pearl stands to make a profit from the deal.
Resolution's jilted merger partner Friends Provident, however, will face serious questions about its ability to survive independently. The insurer, which has been burning cash to grow, has dismissed talk of a share issue, but says it plans to reinstate a debt programme should the tie-up fall through.
At 7:10 a.m. EDT, Friends Provident shares were down 1.5 percent at 173 pence. Resolution was down 0.1 percent at 709 pence, Standard Life down 2.6 percent at 269 pence and Swiss Re was up 2.3 percent at 107 Swiss francs.
(Additional reporting by Mark Potter and Miyoung Kim)