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Around 700,000 small investors in Friends Provident were today offered much less than half what the shares were worth at flotation eight years ago to sell their holding to insurance tycoon Clive Cowdery.
Cowdery's takeover vehicle Resolution is buying the historic company —set up to aid Quakers in 1836 — for £1.86 billion. The price of 79.4p a share is a premium to the Friends share price of late but it is dramatically down on the 225p at which the insurer joined the stock market in 2001.
Back then, 1.7 million policyholders in the mutual company were given at least 200 “free” shares. The 700,000 who have held on to that stake have seen it plummet in value as Friends struggled as a public company.
Investors can take cash for the first 2,500 shares they hold or 0.9 shares in Resolution for each Friends share.
That would give them a stake in Cowdery's ambitious plans to shake up the insurance sector for the second time.
His first Resolution vehicle bought up struggling insurers and shut them to new business, earning the description “zombie funds”.
Cowdery sold this venture to Hugh Osmond, earning £150 million. The new Resolution wants to buy insurers and merge their back offices while running them as going concerns that chase fresh sales. Tim Breedon, boss of Legal & General, a potential target, said last week that merging very complex insurance policies is difficult.
Cowdery said today: “I winced in recognition at that and agree with his broad point. It never generates the cost savings you think it should.” Nevertheless, Cowdery is poised to start other deals. Scottish Widows, the insurer owned by Lloyds Banking Group, is widely seen as a likely bid subject.
Friends initially rejected Resolution's approach, citing concerns about the “hurdle” rate at which Resolution bosses would receive bonuses. This incentive programme has now been toughened up.
Sir Adrian Montague, the Friends chairman who is stepping down, said: “Strategically we have been at the same place as Clive for some time.” Trevor Matthews, the Friends chief executive who will stay to run the company, said it is “midway” through a turnaround. “I am confident we would have started producing good numbers 12 months from now,” he said.
For the first six months of the year Friends made profit of £131 million, down from £211 million last time. Analyst Barrie Cornes of Panmure Gordon said: “The interim results highlight the strategic challenges that Friends faces alone, with new business contribution falling off the edge of a cliff.”
