An amicable Resolution? | FT Alphaville

An amicable Resolution?

No cash, a small premium, and no management change. Having read the weekend press, Resolution’s tilt at Friends Provident looked to be a non-starter.

All the more so because the deal just looked like a way to enable Clive Cowdery and his management team, which includes former FSA chief executive John Tiner, to get rich. (Under Resolution’s articles of association its management share 10 per cent of any value they create, you see).

However, Cowdery and crew are already making some conciliatory noises as Monday’s ‘Statement regarding Friends Provident‘ makes clear.

The Board of Resolution confirms that it is considering a possible offer for the entire issued (and to be issued) share capital of Friends Provident in connection with this consolidation strategy and has approached the Friends Provident Board in this regard.

Although Resolution’s proposal was not considered to be acceptable by the Board of Friends Provident, Resolution received constructive feedback from Friends Provident and its advisers and is considering its response. No decision has been made by Resolution to make an offer for Friends Provident. Any offer that is made by Resolution is likely to be primarily a share exchange offer, but with a partial cash element made available to all Friends Provident shareholders from Resolution’s existing cash resources.

The Resolution Board recognises that Friends Provident has a broad shareholder base, including retail investors and investors who have a preference for receiving income, and intends to take this into account in formulating any offer and its post-acquisition dividend policy.

Resolution reserves the right to amend any or all elements of its possible offer, including, but not limited to, the amount and mix of consideration between shares and cash.

So, what price will Resolution need to offer to get a recommendation from the board of FP?

FP currently trades at around 50 per cent of its embedded value and according to Reuters the consensus target price of analysts is just over 81p.


Given that Resolution needs FP to kick-start its consolidation strategy and start reaping cost, revenue, tax and capital synergies from other deals, its shareholders should hold on for a decent premium. After all, they hold the aces at the moment.

Here’s the view of Barrie Cornes at Panmure Gordon.

Resolution’s approach could lead to others making a play for Friends, but we think that an all cash or large cash element approach is unlikely given the current investment market constraints. On that basis, unless an approach from another suitor is at a significant premium to Resolution’s, we think that shareholders should welcome a revised approach from Resolution. We maintain our Hold recommendation and 75p target price.

Shares in FP are currently 4.8 per cent higher at 63p.

FP have issued a statement rejecting an all stock offer of just over 71p a share and published this letter, which does not look very friendly.

10 July 2009

Dear Mike Thank you for your letter of 7 July 2009 summarising your proposals to acquire Friends Provident Group pplc (Friends Provident) through an offer from Resolution Limited (Resolution).

Our Board has considered your proposals carefully but has concluded unanimously that they do not offer a basis for further discussions.

You have suggested that the acquisition of Friends Provident would offer Resolution the opportunity to drive consolidation in the UK life sector to the benefit of both sets of shareholders. We are open-minded about the benefits of industry consolidation, but at this stage, the pace, direction and value of your consolidation strategy is speculative and uncertain. If deals are secured, realising value involves risks and challenges in putting active life companies together that your proposals do not address.
Our Board is not able to attribute any value to your strategy as it is based on such a lack of specific information.

The terms you have proposed offer Friends Provident shareholders little or no real uplift in value, and are wholly inadequate to compensate Friends Provident shareholders for the suggested exchange of their shares into Resolution shares. Resolution shares would represent a very different type of investment for our 750,000 shareholders than that which they hold today, and one subject to very different risks. The potential diminution or elimination of future dividends would represent a clear loss of value for Friends Provident’s shareholders for which they are in no way being compensated.

The governance structure of the Resolution group as it is currently constituted would offer our shareholders less transparency and a structure significantly different from recognised public company best practice. The structure of Resolution would also dilute our shareholders’ ongoing interest in Resolution through the various preferential interests accruing to your operating partners. In addition, the complexity of your proposed board and management structure would materially limit the remit of our highly regarded management team both strategically and operationally.

In addition, the complexity of your proposed board and management structure would materially limit the remit of our highly regarded management team both strategically and operationally.

Together these various factors highlight the contrast between your proposals and Friends Provident’s current plans. Friends Provident has a strong management team in place and a clear strategy to restructure the Friends Provident Group as a standalone business and enhance its growth prospects. Trevor Matthews and his team have already made very real progress in delivering this plan and our Board is confident the benefits of repositioning Friends Provident will become increasingly clear to all our shareholders over the coming months and years.

Having regard to all these factors, the rationale for our decision is clear.

Yours sincerely Adrian Montague

Related links:
Resolution suffers Friends setback – FT
Overpaid and over there – Sunday Times