After being swiftly dispatched by its quarry last week, JC Flowers is back.
On Monday, Flowers asked for “direct engagement” with Friends Provident and access to certain “non-public information” to carry out due diligence. Pressure has been growing on Friends to get to the negotiating table after the insurer spurned a £3.5bn, 150p-a-share takeover approach from Flowers last week.
But there’s another niggle. Flowers, in the last two months of 2007, bought shares in Friend Provident in the market at an average price of 155p, the highest price paid being 165p.
After Friends was placed in a formal offer period in January, under UK takeover rules, the latter figure should be the minimum at which Flowers can make a firm offer. The private equity group wants the Panel to take into account the fall in Friends’ share price in giving it an opt-out to Rule 6 of the Code.
The Code states that such an exception will be granted only in “exceptional circumstances”, taking into account factors including changes in share price since the stake was taken, the size and timing of the acquisition, whether the buy was made on terms then prevailing in the market and whether a competing offer has been announced.
How exceptional is the Friends situation? The share price has fallen almost 10 per cent since Flowers began buying shares in November, faring worse than the London market overall. That came despite the presence of a circling predator, who before Christmas was apparently indicating a willingness to pay 175-a-share for the insurer. Friends shares rose thanks to Flowers’ interest, even as the FTSE collapsed during January – only to give back gains, falling 11 per cent in one day on the back of the uninspiring outcome of a strategic review.
Friends had its chance then to wow investors and squeeze Flowers for a higher price and blew it. Even with Flowers seeking further talks, shares in the troubled company rose just 1.7 per cent to trade at about 136p on Monday, still well shy of the mooted offer.
The market remains sceptical. The Panel will not offer up what the lawyers would call a derogation lightly. But the need for a Code carve-out is not necessarily a new reason to be wary. Takeover Panel consent to circumvent Rule 6 seems unlikely unless a deal is agreed. Friends’ board would first need to give their backing, which is some way off as matters stand.
JC Flowers doesn’t have a track record of going hostile – but is keen to incite further pressure from investors on its target. Securing Friends’ recommendation is likely in any case to require a move back over that 10 per cent gulf towards what Flowers paid in the market. Rule 6 may end up being a point of academic interest only.
Related links
Statement from JC Flowers
Shareholders say Friends should talk – FT.com