UK life insurer Friends Provident said today it had agreed to talks with suitor Resolution after receiving a revised takeover offer valuing it at almost £1.9 billion.
Though no deal has yet been agreed, sources close to the matter said an agreement could be reached by the end of Monday and announced as early as Tuesday, when Friends reports first-half earnings.
Friends would be a critical first deal for Guernsey-based Resolution, which raised 600 million pounds in a stock market listing last December to buy and restructure life insurers and asset managers. Friends is its first formal target.
It would also mark the end of years of suitors' interest in Britain's smallest bluechip life insurer - a takeover target since it demutualised and listed in 2001 - and the first major UK insurance takeover in almost two years.
News of the talks made Friends the biggest gainer on the UK's top index. At 1242 GMT it was up 6.4 per cent at 74.5p, off earlier highs, outperforming the FTSE down 0.8 per cent.
Based on Friday's closing share prices, Resolution's offer values the company at 79.4 pence, a 13.3 per cent premium but still only little more than one third the 225p price at which the group first listed on the stock market eight years ago.
Analysts said they expected a deal at last for Friends after months of on-off negotiations with suitors.
"It is debatable whether this should be viewed as a takeover. (Friends) still keep their management, franchise, strategy and what they are getting on top is (Resolution boss and insurance veteran Clive) Cowdery with his cash, contacts and deals," analyst Peter Eliot at MF Global said.
Two top fifteen shareholders in Friends - whose shareholder base overlaps substantially with its suitor - confirmed investors broadly favoured joining forces with Resolution through the revised offer.
"There's been a lot of frustration among Friends' shareholders that there hasn't been any progress or growth in the Friends share price over the last few years. The question for investors has been, where can Friends go now?" said one.
Friends said the latest offer was an exchange ratio of 0.9 Resolution shares for each Friends share, and also included a partial cash alternative of no more than £500 million.
That compares with an earlier proposal under which Friends shareholders would have received 0.82 Resolution shares for every Friends share.
A takeover of Friends, Britain's sixth-biggest life insurer, is unlikely to radically shake up the UK life insurance sector, but it will boost the turnaround efforts of the reinvigorated former mutual, led by Chief Executive Trevor Matthews.
A successful deal would also trigger speculation regarding Resolution's next target. The company, which aims to integrate and restructure its acquisitions before re-listing them at a profit, has said it could fund future deals in part by selling more shares.
"Friends is a transformational deal for (Cowdery)," said Shore Capital analyst Eamonn Flanagan.
"It's a stepping stone, but nothing more than that. In which case I suspect another deal will be sooner rather than later."
Analysts have speculated that future targets could include insurance units of Lloyds Banking Group, particularly its Scottish Widows life business.
Resolution and Friends broke off talks in July, but one of the sources close to the matter said pressure from shareholders pushed Friends to allow due diligence only two days later.
The companies declined to comment on the timing of any deal.
Friends reports first-half results tomorrow. It is expected to post a drop in profit, hit by weaker sales as the group withdraws from less lucrative areas of the market.
Reuters