Standard Life came under renewed pressure to secure a friendly deal at a high price to take over Resolution, if it still plans to bid, when rival bidder Pearl yesterday firmed up its 16.5% shareholding in Resolution.
Pearl, which had held half of its stake as a forward purchase contract giving the right to buy shares at 622p, has now exercised the right. Resolution shares have risen substantially since that deal, giving Hugh Osmond's Pearl the prospect of a profit of up to £100m - but only if Standard Life makes a successful bid.
Standard would need the support of 75% of shareholders for approval of a bid, giving Pearl a potentially blocking stake.
Standard's intentions were still unclear ahead of today's deadline set by the Takeover Panel for tabling a bid. Standard released another holding statement on Tuesday evening repeating there could be no certainty of a bid, after persistent talk that it would offer around 730p a share.
Resolution shares dipped 10.5p to 707.5p yesterday.
Meanwhile, Resolution and Friends Provident, wooing investors ahead of the key vote on their planned merger on November 5, promised to return around £2bn of capital over the next two years, and committed the new Friends Financial to make a 13% annual return on embedded value from 2009.
At the same time, Friends Provident unveiled a 35% rise in third-quarter sales to £5.58bn. Its UK business's nine-month sales rose 13% to £3.4bn.
But Pearl immediately attacked the announcements, complaning that the return of capital would "transfer materrial tangible value" from Resolution to Friends shareholders, and noting that pension surrenders at Friends last year amounted to 83% of the insurer' s new business premiums.
Marcus Barnard at Pali International, said he was not sure whether Standard Life's bid would materialise. "Standard Life knows that to buy Resolution, it would have to have to convince its shareholders that the bid was attractive. As Osmond wants to buy Resolution and controls 16.5% of it, this may not be easy. Osmond could try to force Standard Life to pay more."
Matt Lilley, an analyst at Lehman Brothers, commented: "The increase in proposed capital return for Friends Financial shareholders presents a difficult situation Given that Standard Life cannot offer an all-cash deal, we believe it makes it more likely that it will have to bid £7.50 or more to secure Resolution, and in our view risk overpaying."
However, Lilley added that by publicly considering a bid, Standard's management had "suggested it may have doubts about the sustainability of its organic growth strategy".
Greig Paterson at KBW said a Standard Life offer would need to be "in the late 700p range".
He added: "Given that existing outsourcing arrangements at Resolution should restrict synergies and that the need for a large issuance of equity by Standard Life (previously estimated at £1.2bn-£1.3bn) is likely to hurt its share price significantly, we attach a lower probability of a successful bid by a Standard Life/Swiss Re consortium."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article