Resolution eyes third deal after buying Axa UK arm

RESOLUTION, the life and pensions consolidator, yesterday completed its £2.75 billion acquisition of Axa's UK life assurance business and confirmed that it would do another deal within 12 months.

Trevor Matthews, the chief executive of Resolution's Friends Provident business, will run both operations. The merged group will be rebranded as Friends Life once regulators and shareholders approve the deal.

The Axa deal is Resolution's second takeover after its 1.8bn acquisition of Friends Provident last year.

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Resolution, founded by insurance tycoon Clive Cowdery, aims to buy at least one more life insurer or asset manager, creating a group with embedded value of 10bn, which it plans to sell or float in 2012. The Axa deal will create a group with an asset value of more than 6bn.

Matthews did not comment on potential targets, although he said that Aegon UK's bulk annuities business was "interesting". He added that an annuity capability was "an obvious gap in our range". Matthews said: "It is an area we would certainly be interested in for acquisition number three."

Last week, Edinburgh-based Aegon announced that it would withdraw from the bulk annuities business, which buys out the liabilities of corporate final-salary pension schemes, in an effort to cut its costs by 80 million and shed as many as 600 jobs.

Analysts say that other targets in the frame for Resolution include the Lloyds Banking Group-owned businesses Clerical Medical and Scottish Widows, but the "jewel in the crown" would be the Prudential's UK business.

Analysts suggested that Resolution went ahead with the deal with the French firm when it became clear the UK division of life and pensions giant Prudential was no longer up for sale. Last month, the Pru failed in its $35.5bn (24bn) bid to buy out AIA, the Asian business of the troubled American insurer AIG.

One of the options being considered to fund the deal was the sale of the Pru's UK business.

The purchase of Axa UK's life assurance business, which includes corporate pensions, protection and annuities, will be financed by a 2.05bn rights issue.

Although the deal was hailed by analysts as "sensible", others were sceptical. Eamonn Flanagan, an analyst with Shore Capital, said the combined businesses were both "mediocre" and cited the "poor treatment" meted out to long-standing shareholders whose holdings will be diluted heavily in the rights issue.

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Resolution investors will be offered 17 new shares for every one they hold at 150p, a 38 per cent discount to the theoretical ex-rights price of 242.2p, based on Resolution's closing price on 11 June.

Matthews did not rule out the need to go to shareholders again for a new acquisition, although he said that there was a "variety of funding methods possible" in the future.

He added that the 52 per cent of shareholders that had already backed the rights issue was "proof that the shareholders seem very happy with this one".

The company said it expected to achieve annual cost savings of 75m over three years. The Unite union, representing AXA staff in Britain affected by the deal, said it was worried that employees might lose their jobs.

"The sale of the AXA life protection business will cause the workforce considerable anxiety as they now have serious concerns about the security of their jobs and the drive by Resolution to reduce costs," said Siobhan Endean, a national officer for Unite.