Friends in attack on 'flawed' Resolution buyout bid

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LIFE insurer Friends Provident sharply rejected financial buyout firm Resolution's sweetened takeover proposals yesterday as "flawed in a number of significant ways".

Friends, whose chief executive Trevor Matthews formerly ran Edinburgh-based Standard Life's life and pensions arm, targeted Resolution's "totally inappropriate" governance arrangements.

In its second rejection of a Resolution approach, Friends cited its concerns about "substantial (Resolution] management functions outsourced to a third party management company: Resolution Operations LLP".

Friends said it was unhappy there was no representation on the main board of Resolution of the key members of the Resolution Operations management team "reducing significantly any accountability to shareholders".

It also said it was unhappy about "significant fees and preferential entitlements accruing to third-party vehicles controlled by and for the sole benefit of the individuals represented by Resolution Operations LLP".

There was no immediate response last night from Resolution, whose offer is estimated to be worth about 1.4 billion.

The rejection followed a City meeting yesterday between leading directors of both companies.

Friends said: "These structural and governance concerns remain so fundamental that the board of Friends Provident does not believe there can be any progress in discussions with Resolution until they are addressed."

Friends said it had tried to address these concerns in its own counter-proposals submitted last Friday that would have seen it become the dominant partner in any united company.

The group said it continued to see advantages in the consolidation of the UK life industry, but any deal between it and Resolution had to be fair and with proper governance arrangements.

Resolution, the Guernsey-based vehicle of entrepreneur Clive Cowdery, had sweetened its proposed offer for the insurer earlier yesterday by including a cash element, a commitment on the Friends dividend for 2009 and clarification of the proposed merged group's structure.

However, Cowdery dismissed Friends' suggestion that it would be in charge of any joint holding company formed from a merger.

"It's not entirely clear to us why a relatively small life insurer would wish to buy a broadly-based financial services restructuring firm. I don't think that is a sensible way to contemplate moving forward," he said.

Friends Provident's attack on Resolution's corporate governance is particularly embarrassing to the would-be suitor as its chief executive is John Tiner, the former head of the British financial regulator, the Financial Services Authority.