Two British insurers in merger talks
LONDON: Friends Provident and Resolution, two British insurers with a combined market value of about 8.3 billion, are in merger talks that are scheduled to be announced on Monday, people with direct knowledge of the talks said over the weekend.
Discussions for such a combination, which would value the two companies together at about $16 billion, are at an early stage and no transaction is guaranteed, said the people, who declined to be identified because the talks are confidential.
“I would back Resolution to do this deal and execute it successfully,” said Ed Collins, a fund manager in London with New Star Asset Management.
Friends Provident has expertise in marketing new life insurance policies, while Resolution is good at managing them, Collins said.
After months of speculation on possible consolidation in Britains life insurance sector, confirmation of talks between its two smallest blue chip players could flush out other deals, as well as other potential bidders, particularly for Friends.
Friends Provident has frequently been named as a takeover target; AXA, the French insurer, and private equity bidders have in the past been named as potential interested parties.
The people with knowledge of the talks said this weekend that the aim was for a “merger of equals” - given the roughly equal size of Resolution and Friends and their complementary businesses - with top management roles split between them.
Shares of insurers have been among the worst performers in the FTSE this year, with the life insurance group ranking 36 out of 39 in the FTSE All-Share Index. Friends Provident, the worst-performing insurance stock this year in Britain, said in April that it could struggle to meet a target for new business.
Friends Provident rose 4.3 percent in London on Friday, the biggest one-day jump since May, on speculation that it was a takeover target.
More than 61 million shares changed hands, three times the daily average over the last 12 months. The stock has declined 14 percent this year, valuing the company at 4 billion.
Resolution rose 0.2 percent Friday, reducing this years decline to 1.9 percent and giving the company a market value of 4.3 billion. The combined companies would rank fifth in the British insurance industry by market value.
The merger talks were first reported by The Financial Times and The Times of London on Saturday.
The talks have been going on “for several months,” The Times reported, without saying where it had obtained the information.
Resolution typically competes with companies like Swiss Reinsurance to buy funds that no longer accept new customers, trimming expenses and collecting premiums until policies expire.
Resolution, whose chairman is Clive Cowdery, also manages funds for new clients and bought the life insurance unit of Abbey National for 3.6 billion in 2006.
Friends Provident, which appointed Philip Moore as chief executive officer in January, had forecast 200 million in profit from new business in Britain by 2008.
Investors have also speculated that J.C. Flowers, a private equity firm in the United States, Standard Life and AXA may make a combined bid for Friends Provident, The Times said. Friends Provident initially resisted merger talks with Resolution, The Financial Times reported without citing the source of the information. Friends Provident is now “more amenable” because of “strains on its cash flow and capital,” the report added.
