Price is wrong for Resolution

Consider the following. This time 12 months ago Standard Life and Resolution were in talks, and these dragged on for what felt like six months, although it was probably a bit less, before in the end the Scottish company pulled back. It need hardly be said that Resolution's share price was quite a bit lower at that time.

Then, throughout this summer, after Hugh Osmond's Pearl had made it obvious it would like to spoil the proposed merger between Resolution and Friends' Provident, Standard Life engaged with him to see how they might co-operate in a counter-bid and divide up the spoils between them.

The proposal was broadly that Standard Life should take the slice of the Resolution business that Pearl has in fact now contracted to sell to Royal London - but the only reason Royal ever got a sniff of the deal was again because Standard Life could not see enough obvious synergies to make it a musthave, and just dragged its feet too long.

Now the one thing you would conclude from that is that Standard Life could not see the value or the logic of a Resolution deal no matter which way it looked at it. However, you would conclude wrong. There is still time for it to draw back, but all the indications are that it is coming after Resolution, in partnership with Swiss Re, with a proposed offer that would turn out very similar to what was on offer from Pearl months ago.

Except that it will be massively more expensive - partly because they are now launching into a competitive auction, partly because they still have to sell their surplus assets to their partners, the Swiss, who most certainly know how to screw someone when they have them over a barrel.

The logic of Standard Life buying Resolution is not too different from why Friends Provident wants to merge with Resolution (albeit Friends' striking price is hugely less).

It is attractive because it solves any lingering capital constraints on growing the business, because Resolution is highly cash-generative, and both Friends and Standard think it opens up opportunities for cross-selling their products to Resolution customers - though why anyone in a Resolution zombie fund would want to buy another insurance product ever in their lives after what has happened to them is given rather less attention than it should be. But that only makes sense if they don't overpay.

Even then it is not just about price. Standard Life has only just emerged from intensive care, and there must be doubts if it has the depth of management skills to handle this kind of deal and its attendant disruption, politicking and distractions.

One can understand how Sandy Crombie, the chief executive who turned the business round, now wants to finish his career with a transformational deal, and how as a new chairman Gerry Grimstone is reluctant to stand in his way. But it is the shareholders who have to live with the aftermath. Standard Life has a lot of work to do to persuade them this is the first Gulf War, not the second.