30th Jul 2007 07:01
Resolution PLC30 July 2007 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO ORFROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THERELEVANT LAWS OF SUCH JURISDICTION 30 July 2007 RESOLUTION PLC: MERGER UPDATE Resolution plc ("Resolution") and Friends Provident plc ("Friends Provident")are commencing their meetings with investors to present the merits of the mergerto form Friends Financial Group plc ("Friends Financial"). Given recent share price movements in the market and the insurance sector inparticular, the Board of Resolution (the "Board") is issuing this update on themerger and its benefits for Resolution shareholders. The Board's sole aim is to continue to build on its outstanding record ofdelivering value to shareholders by continuing its strategy of participating inthe consolidation of the UK life sector. In this context the Board announced itsagreed merger with Friends Provident on 25 July. The Board believes this merger will create significant value for, and will bewelcomed by, Resolution's shareholders. The Board believes that the value of Friends Financial includes the followingcomponents: • the combined embedded values of Resolution and Friends Provident, and the market value of Friends Provident's interest in F&C Asset Management plc, which, in aggregate, amount to £8,085 million (see note 1); plus • the value of cost and financial synergies of £100 million per annum before taxes, as announced with the Friends Financial merger on 25 July 2007 less £120 million one-off implementation costs before taxes; plus • the value of the combined new business franchise, which in 2006 would have produced approximately £250 million value of new business before tax (see note 2); plus • the goodwill value ascribed to Resolution Asset Management (2006 operating profit before tax of £32 million), in excess of the goodwill of £135 million included in embedded value; plus • the value ascribed to elements not included above, such as Resolution's service company (2006 operating profit before tax of £15 million), less corporate costs; plus • the revenue synergies and ongoing developments as set out below. Through the combination of Friends Provident's new business capability andResolution's cashflow generation, Friends Financial can provide shareholderswith both profitable new business growth, growing dividend income and theprospect of a return of capital to shareholders in 2008. The combined business will have a leading position in the UK in group pensionsand will rank third in protection with a market share of approximately 14 percent. Resolution has examined the group pensions market and is confident thatFriends Provident's group pensions franchise is positioned to exceed a 12 percent IRR target and to be self-financing by 2011. Friends Provident'sinternational new business has been growing fast and had an IRR of 25.7 per centin 2006. In addition, Resolution and Friends Provident see specific areas to accelerateprofitable new business through: • Friends Provident's existing annuity product being made available to capture a share of the approximately £900 million p.a. of vesting pensions on Resolution's books; • greater penetration of the Abbey bancassurance relationship, with Friends Provident's broader product suite, national sales and training network, and experience of servicing other bank distribution partners; and • developing new business products under the Friends Provident brand for the approximately 7 million customers on Resolution's in-force books. The Board therefore believes the current share price fundamentally undervaluesthe prospects for Resolution shareholders as part of Friends Financial. The Board remains relentlessly focused on the delivery of value to ResolutionShareholders. Note 1: £8,085 million is derived on the basis of: • Resolution's published 31 December 2006 embedded value of £4,197million (excluding goodwill), published embedded value uplifts in respect offurther financial synergies announced with Resolution's 2006 preliminary resultsof £150 million, the outsourcing transaction with Capita of £56 million and thechange in the UK corporation tax rate of £75 million; plus • Friends Provident's published 31 December 2006 embedded value,excluding its holding in F&C Asset Management plc ("F&C"), of £3,126 million,plus Friends Provident's holding in F&C at market value on 27 July 2007 of £481million. Note 2: Based on Friends Provident's published 2006 pre-tax value of newbusiness of £204 million and Resolution's pre-tax value of new business for thesix months ended 31 December 2006 of £23 million, annualised (Resolution did notown the new business operations in the first half of 2006). Note 3: As previously announced on 25 July 2007 under the merger agreementboth of the parties have reserved the right in the event of an alternativeproposal for the other party to elect to implement the merger by means of atakeover offer, such offer to be on terms no less favourable to the otherparty's shareholders, to be subject to a 50 per cent acceptance condition and toremain open until Day 60 under the City Code. Under the provisions of Rule 8.3 of the Code, if any person is, or becomes, "interested" (directly or indirectly) in 1% or more of any class of "relevantsecurities" of Friends Provident or Resolution all "dealings" in any "relevantsecurities" of that company (including by means of an option in respect of, or aderivative referenced to, any such "relevant securities") must be publiclydisclosed by no later than 3.30 pm (London time) on the London business dayfollowing the date of the relevant transaction. This requirement will continueuntil the date on which any offer becomes, or is declared, unconditional as toacceptances (or, if implemented by a scheme of arrangement, such scheme becomeseffective), lapses or is otherwise withdrawn or on which the "offer period"otherwise ends. If two or more persons act together pursuant to an agreement orunderstanding, whether formal or informal, to acquire an "interest" in "relevantsecurities" of Friends Provident or Resolution, they will be deemed to be asingle person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the Code, all "dealings" in "relevantsecurities" of Resolution by Friends Provident or of Friends Provident byResolution, or by any of their respective "associates", must be disclosed by nolater than 12.00 noon (London time) on the London business day following thedate of the relevant transaction. A disclosure table, giving details of thecompanies in whose "relevant securities" "dealings" should be disclosed, and thenumber of such securities in issue, can be found on the Takeover Panel's websiteat www.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marks are defined in the Code, which can also be found on theTakeover Panel's website. If you are in any doubt as to whether or not you arerequired to disclose a "dealing" under Rule 8, you should consult the TakeoverPanel. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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