20th Jul 2009 07:00
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES OR ANY OTHER JURISDICTION WHERE TO DO THE SAME WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION
20 July 2009
Resolution Limited ("Resolution")
Statement regarding a possible share and cash offer for Friends Provident Group plc ("Friends Provident")
Resolution welcomes Friends Provident's statement of Friday 17 July 2009 endorsing the benefits of Resolution's consolidation strategy for the UK life assurance sector and is meeting with Friends Provident today to explore whether the two companies can find a way forward that is mutually acceptable.
Mike Biggs, Chairman of Resolution, commented:
"Resolution was established to catalyse change in the financial service sector. Its first project is in the UK life sector. We welcome Friends Provident's acceptance of the need for consolidation in the UK life sector and preparedness to engage with us. We are putting forward proposals that we believe will be attractive to Friends Provident shareholders and allow Resolution to deliver consolidation in the UK life sector, to the benefit of all shareholders in the sector. We look forward to a successful conclusion to our discussions."
Resolution's strategy
Resolution is listed on the Official List of the Financial Services Authority ("FSA") and admitted to trading on the London Stock Exchange. Its objective is to provide the public markets with a series of restructuring opportunities in the financial services industry over time using shareholder capital to acquire and restructure businesses and then return them to the public markets. Resolution has undertaken only to make acquisitions where it considers them capable, in aggregate, of generating returns consistent with a mid-teens percentage gross internal rate of return over the medium term1. Resolution generally expects to hold a company or business it acquires for between two to four years before returning capital or shares to its shareholders, who will then have the option as to whether to reinvest in subsequent projects. It therefore does not expect to be the long term owner of Friends Provident, or any other assets it acquires.
Resolution's first project is the consolidation of the UK life assurance sector, both with respect to new business writers and in-force portfolios, which it considers is both desirable and inevitable given the fragmentation, complexity and low returns within the sector.
In an extremely difficult new business environment, many life companies are struggling to achieve the scale necessary for margins to rise and payback periods to fall to a level that shareholders will continue to support. Resolution recognises the attempts being made by Friends Provident and other sub-scale life assurers to achieve organic growth to scale but believes that this can be accelerated and de-risked by consolidation. Furthermore, consolidation should enhance returns to shareholders through operational and financial synergies, together with a re-rating of cash flows from combining a number of life assurance companies ahead of an intended re-listing of the enlarged business.
Since December 2008, Resolution has assessed a number of companies as potential constituents of its consolidation strategy and been engaged in discussions with both corporate owners and public market shareholders.
Resolution's discussions with these companies have led to a clear view of the likely timing for the availability of several significant companies, and allowed Resolution to analyse the value potential of consolidating a number of such companies into a single scale life assurer with:
a substantial in-force portfolio providing predictable yield with duration for income investors; and
a new business franchise focused on risk products, annuities and collective savings, and with sufficient scale to offer investors acceptable returns and payback periods.
Resolution has concluded that a consolidation within the UK life sector will occur within the next two years, a consolidation which it is committed to sponsoring and which it intends will lead to the re-listing of an enlarged group by 2012.
Resolution expects institutional investors to have a strong preference for shares in the enlarged entity, thereby allowing them to benefit from the value created by financial and operational synergies and the potential re-rating available from the restructuring. Similarly, private transactions are expected to include a share element, but are likely to have a higher cash proportion in order to release capital required by vendors for deployment elsewhere.
The benefits of an acquisition of Friends Provident
Resolution considers that Friends Provident is a suitable constituent of its planned consolidation, because it provides:
a secure in-force portfolio which, together with the back books of acquired companies, can provide a sustainable yield with predictable duration for income investors;
a new business platform around which acquired product lines can be consolidated to scale positions; and
a management team with experience of managing a large scale new business franchise.
Timing
The decision by Resolution to approach Friends Provident was informed by Resolution's view of the market opportunity for follow-on transactions over the course of the next two years, and its desire to work with the Friends Provident management and Board in securing these assets.
Key deliverables for shareholders from a transaction
The Resolution Board believes that any such transaction must:
deliver an unambiguous change of control from one company to the other, ensuring that there is clarity for shareholders as to the strategy being adopted by the enlarged company;
ensure that management capabilities of both organisations are retained;
result in clear alignment with Resolution's enlarged shareholder base, in order to attract the capital required to facilitate follow-on transactions; and
allow the efficient return of capital to shareholders at the end of each restructuring project.
Whilst Resolution remains open to any transaction structure that would achieve the above goals for its institutional investors, Resolution is of the view that they are best achieved by it acquiring the entire issued and to be issued ordinary share capital of Friends Provident, and sets out below its proposed outline terms (the "Possible Offer").
In formulating the Possible Offer, Resolution has considered carefully the issues raised by the Friends Provident Board, in particular the importance of meeting the needs of Friends Provident's broad shareholder base, including its retail investors, and has sought to clarify and improve its previous possible offer accordingly.
The Possible Offer
Friends Provident listed on the London Stock Exchange on 9 July 2001 with a closing share price of £2.40. The undisturbed share price of Friends Provident on 10 July 2009 was 60.4 pence and the average Friends Provident closing share price in the period 1 January 2009 to 10 July 2009 was 61.3 pence (after adjusting to allow for the demerger of Friends Provident's asset management business and for the interim dividend of 2.6 pence per Friends Provident share due to be paid on 24 July 2009).
Subject to the terms and conditions to be set out in any firm offer announcement and the satisfaction or waiver of the pre-conditions set out below, the Resolution Board would be prepared to make an offer for the entire issued and to be issued ordinary share capital of Friends Provident. Resolution would be prepared to make an offer on the following basis:
a cash component for up to the first 2,500 Friends Provident shares held by each Friends Provident shareholder (subject to the total amount of cash not exceeding a specified amount); and
an issue of Resolution shares in exchange for the remaining Friends Provident shares held by each Friends Provident shareholder.
It is envisaged that the Possible Offer would enable Friends Provident shareholders to elect to take Resolution shares instead of all or part of the cash component of the offer (at the applicable exchange ratio per Friends Provident share).
The cash component of the Possible Offer, if made, is expected to allow the vast majority of Friends Provident's retail shareholders to exit in cash in full, if they so choose.
The number of shares in respect of which each Friends Provident shareholder would be entitled to receive cash under the cash component of the Possible Offer may be reduced from 2,500 if the total amount of cash available for the offer is insufficient to allow each Friends Provident shareholder to receive cash in respect of the first 2,500 Friends Provident shares that it holds. This will depend on the details of Friends Provident's share register at the relevant time and the specified total amount of cash made available at the time.
It is the strong preference of the Resolution Board to proceed with the Possible Offer on a recommended basis by way of a scheme of arrangement. Were the Possible Offer to proceed as a takeover offer rather than a scheme of arrangement, adjustments may have to be made to the cash arrangements to accommodate this structure.
Funding
Resolution currently has cash resources of approximately £645 million. The cash component of the Possible Offer is currently expected to be funded entirely from Resolution's existing cash resources.
The remainder of Resolution's cash resources would be retained and available to support, among other things, the future organic growth of the business and to provide an additional capital buffer.
Equity financing for any future acquisitions requiring a cash component would be expected to be raised from the enlarged Resolution shareholder base as required.
Dividend
The Resolution Board understands that Friends Provident's dividend policy has been carefully considered by its Board and that it is attractive to a certain constituency within the Friends Provident shareholder base, in particular to income funds. The Resolution Board proposes that, subject to due diligence confirming that the Friends Provident business will generate sufficient cash on an ongoing basis to finance Friends Provident's current dividend policy for its existing shareholder base, Resolution would pay an annual dividend in respect of 2009 which gives a Friends Provident shareholder the same level of dividend income as they would have received in the absence of this transaction.
Corporate structure to effect consolidation
Resolution's strategy and structure were designed to meet the needs of public market investors and constructed in conjunction with them. They reflect Resolution's focus on delivering value to its shareholders during its period of ownership of assets and ensure that the interests of all parties are aligned.
Resolution seeks to adopt the highest standards of corporate governance and complies with the Financial Reporting Councils' Combined Code on Corporate Governance so far as applicable, taking into account the non-executive nature and size of its Board. Furthermore, it intends to seek a transfer to a primary listing at completion of this acquisition.
Resolution plans that the Friends Provident Board would become the Board of Resolution's UK holding company, to be named Friends Provident Holdings (UK) Limited ("Friends Provident Holdings"). This is the entity which the Resolution Board envisages would be re-listed upon completion of Resolution's consolidation strategy and restructuring of the UK life insurance market.
The Resolution Board notes that the listed debt instruments issued by Friends Provident are guaranteed by Friends Provident Life & Pensions plc, irrespective of the corporate structure of the Friends Provident group. Resolution has no plans to change the corporate structure of the Friends Provident group, and expects that this would remain unchanged under Friends Provident Holdings. It is expected that UK life companies subsequently acquired by Resolution would be transferred under Friends Provident Holdings following completion of their acquisition.
The Friends Provident Holdings Board would therefore, amongst other things, be responsible:
to the FSA for all regulatory matters relating to Resolution's UK life assurance group;
for overseeing the development and integration of companies acquired and transferred to Friends Provident Holdings; and
for developing and implementing the business strategy for Friends Provident Holdings and its subsidiaries and preparing the business for its re-listing as a scale life assurance business.
Board and management of Friends Provident Holdings
Friends Provident Holdings will be a wholly owned subsidiary of Resolution. The Resolution Board is chaired by Mike Biggs.
The Resolution Board considers it important to the achievement of its objectives that the Friends Provident Board retains a strong executive and non-executive team throughout the period of its restructuring and upon the enlarged Friends Provident group's intended re-listing. Accordingly, Resolution intends that the Friends Provident Holdings Board will be comprised of:
a majority of independent non-executive directors, including Friends Provident's existing chairman: the Resolution Board would invite all of the existing Friends Provident non-executive directors to join this board, supplemented, over time, by additional non-executive directors from the Boards of subsequently acquired companies;
the CEO and CFO of Friends Provident Holdings; and
two Resolution shareholder representatives as additional non-executive directors (proposed to be Clive Cowdery and John Tiner).
Incentive, share and pension schemes
The Resolution Board expects that all Friends Provident share schemes will vest in accordance with their terms on completion of the acquisition.
The Resolution Board envisages that the Friends Provident management team will be eligible for incentive arrangements which are aligned with the interests of shareholders. This will ensure that the Friends Provident management team, the Resolution Operations team leading the consolidation, and Resolution's institutional investors are aligned behind the objective of creating value for the enlarged Resolution shareholder base throughout Resolution's period of ownership of Friends Provident.
The Resolution Board intends to put in place a scheme for Friends Provident employees to replace Friends Provident's existing share-save scheme following completion of the acquisition.
Resolution does not expect to make any changes to the current Friends Provident pension arrangements.
Pre-conditions
The pre-conditions to the making of the Possible Offer are:
the unanimous, unqualified and unconditional recommendation of the Friends Provident Board to its shareholders to accept the Possible Offer and such recommendation not being withdrawn or modified;
completion of a limited due diligence exercise to the satisfaction of Resolution; and
the entry into a customary implementation and non-solicitation agreement between Resolution and Friends Provident in relation to the Possible Offer on terms satisfactory to Resolution.
Resolution reserves the right to waive, in whole or in part, any of these pre-conditions at any time in its sole discretion.
Conditionality of Possible Offer
The Possible Offer would, if made, be subject to conditions that are customary in the context of an offer for a UK regulated insurance group including:
if the Possible Offer were to be implemented by way of scheme of arrangement under the Companies Act 2006 (which is Resolution's strong preference), the approval of Friends Provident shareholders and the sanction of the scheme of arrangement by the High Court; and
the receipt of all necessary regulatory clearances including from the FSA and certain overseas regulators.
Resolution has held preliminary discussions with the FSA regarding the transaction.
Right to vary the Possible Offer
This announcement is being made in order to facilitate discussions with Friends Provident, its shareholders and other stakeholders, and the shareholders of Resolution. Following such discussions and prior to making any Possible Offer, Resolution reserves the right to amend any or all elements of the Possible Offer, including the form of consideration, the mix of consideration as between Resolution shares and cash (and how it is allocated between shareholders) and/or the amount of any cash forming part of the total consideration.
Alternative proposals
Resolution remains willing to consider any alternative proposals which offer the same clarity of purpose as this proposal.
This announcement does not constitute an offer or invitation to purchase any securities nor an announcement of a firm intention to make an offer under Rule 2.5 of the Code. Accordingly, there can be no certainty that any offer will ultimately be made even if the pre-conditions to the Possible Offer are satisfied or waived. Resolution may, in its sole discretion, decide to proceed or not to proceed with the Possible Offer.
|
Contacts Temple Bar Advisory: |
|
|
Alex Child-Villiers, Press enquiries |
+44 (0) 7795 425580 |
|
Resolution: |
|
|
Steve Riley, Investor relations: |
+44 (0) 20 7016 9085 |
|
Credit Suisse: |
|
|
James Leigh-Pemberton |
+44 (0) 20 7888 8888 |
|
Lazard: Will Samuel |
+44 (0) 20 7187 2000 |
__________________________________________________
1 The gross internal rate of return is the rate of interest such that the present value of all investor cash flows is zero. Investor cash flows are the net investor outflows and investor inflows. The investor outflows include Resolution's initial fund raising (including issue costs) in December 2008 and future shareholder investments (for example, by way of rights issues or issue of shares as consideration for an acquisition). The investor inflows include all dividends and returns of capital made by Resolution whether by cash or the distribution in specie of shares in acquired businesses to Resolution shareholders or otherwise. Resolution's target return is before any payment of the "value share" payable to members of the Resolution Operations LLP group.
This announcement does not constitute or form part of any offer or invitation to sell or purchase any securities or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities, pursuant to an offer or otherwise. Any offer would be made solely by specific offer documentation which would contain the full terms and conditions of any offer, including details of how any such offer may be accepted.
Credit Suisse Securities (Europe) Limited and Lazard & Co., Limited are acting for Resolution and no one else in connection with the matters described in this announcement, and will not be responsible to anyone other than Resolution for providing the protections afforded to clients of Credit Suisse Securities (Europe) Limited and Lazard & Co., Limited or for providing advice in relation to the matters described in this announcement.
To the extent permitted by applicable law, in accordance with, and to the extent permitted by, the Code and normal UK market practice, the Offeror or its nominees or brokers (acting as agents) or their respective affiliates may from time to time make certain purchases of, or arrangements to purchase, shares or other securities in Resolution and Friends Provident, other than pursuant to any Possible Offer, before or during the period in which any Possible Offer remains open for acceptance. These purchases may occur either in the open market at prevailing prices or in private transactions at negotiated prices. Any such purchases, or arrangements to purchase, will comply with all applicable UK rules, including the Code and the rules of the London Stock Exchange. In addition, in accordance with, and to the extent permitted by, the Code and normal UK market practice, Credit Suisse Securities (Europe) Limited and Lazard & Co., Limited and its respective affiliates will continue to act as exempt principal traders in Resolution and Friends Provident shares on the London Stock Exchange and engage in certain other purchasing activities consistent with their respective normal and usual practice and applicable law. To the extent required by the applicable law (including the Code), any information about such purchases will be disclosed to the Panel on Takeovers and Mergers and a Regulatory Information Service including the Regulatory News Service on the London Stock Exchange website, www.londonstockexchange.com.
The distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by the laws of those jurisdictions and therefore persons into whose possession this announcement comes should inform themselves about and observe any such restrictions. Failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdiction. In particular, this announcement is not for publication or distribution (directly or indirectly) to US persons or in or into the United States (including its territories and possessions, any state of the United States and the District of Columbia).
If the Possible Offer is implemented, such offer will not be made, directly or indirectly, in or into or by the use of the mails of, or by any other means (including, without limitation, electronic mail, facsimile transmission, telex, telephone, internet or other forms of electronic communication) of interstate or foreign commerce of, or any facility of a national securities exchange of any jurisdiction where the relevant action would constitute a violation of the relevant laws and regulations of such jurisdiction or would result in a requirement to comply with any governmental or other consent or any registration, filing or other formality which Resolution regards as unduly onerous (a "Restricted Jurisdiction") and will not be capable of acceptance by any such use, means or facility or from within any such Restricted Jurisdiction. Accordingly, unless otherwise determined by Resolution, copies of this announcement and any documentation relating to the Possible Offer are not being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in or into or from any Restricted Jurisdiction and persons receiving such documents (including custodians, nominees and trustees) must not mail or otherwise forward, distribute or send any such documents in or into or from any such Restricted Jurisdiction, as doing so may invalidate any purported acceptance of any such offer. Any person (including, without limitation, custodians, nominees and trustees) who would, or otherwise intends to, or who may have a contractual or legal obligation to, forward this announcement and/or any other documentation relating to the Possible Offer to any jurisdiction outside the United Kingdom should inform themselves of, and observe, any applicable legal or regulatory requirements of any relevant jurisdiction.
This announcement has been prepared for the purposes of complying with English law and the Code and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of England.
Forward-Looking Statements
This announcement, including information included in this announcement, contains "forward-looking statements" concerning Resolution and Friends Provident that are subject to risks and uncertainties. Information in this announcement relating to Friends Provident has been compiled from published sources. Generally, the words "will", "may", "should", "continue", "believes", "expects", "intends", "anticipates" or similar expressions identify forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond Resolution's ability to control or estimate precisely, such as future market conditions, changes in regulatory environment and the behaviour of other market participants. Resolution can give no assurance that such forward-looking statements will prove to have been correct. The reader is cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. Resolution undertakes no obligation to update or revise publicly any of the forward-looking statements set out herein, whether as a result of new information, future events or otherwise, except to the extent legally required.
Nothing contained herein shall be deemed to be a forecast, projection or estimate of the future financial performance of Resolution, Friends Provident or any other person following the implementation of any Possible Offer or otherwise.
Resolution securities
Securities of Resolution have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"). Accordingly, they may not be offered or sold in the United States, absent registration or an exemption from the registration requirements of the Securities Act. No public offering of securities will be made in the United States. Resolution will not be registered under the US Investment Company Act of 1940, as amended (the "Investment Company Act"), and investors will not be entitled to the benefits of that Act. Resolution securities will only be issued to persons resident in the United States or who are US Persons (as defined in Regulation S of the Securities Act) in accordance with an exemption from the registration requirements of the Securities Act if they are Qualified Purchasers (as defined in the Investment Company Act).
Publication on Resolution website
A copy of this announcement is and will be available free of charge, subject to certain restrictions relating to persons resident in restricted jurisdictions, for inspection on Resolution's website at www.resolution.gg.
Related Shares:
FLG.LFondul Proprietatea