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15 April 2024

Friends wants clarity from Flowers

By Agencies

Embattled Friends Provident has called on suitor JC Flowers to clarify its intentions, almost two months after the US private equity firm first said it was considering making a bid.


Publishing 2007 earnings broadly in line with indications provided in January - including an underlying profit of just £16 million (Dh117m), battered by some £400 million of charges - the insurer told investors it was pushing ahead with its planned overhaul and had been approached by "a stream" of buyers for units it has earmarked for sale.


Friends, a takeover target since its listing in 2001, has been reviewing its strategy since late last year, when a planned merger with rival Resolution fell through, raising concerns over cash, and the insurer ousted its chief executive.


It said on Tuesday that finance director Jim Smart would be leaving in the summer, just after the arrival of its new chief executive, former Standard Life executive Trevor Matthews, reviving speculation of a takeover.


"The big [questions] are really can they get the asset sales away and whether Flowers is interested in approaching them on a more formal basis," analyst Trevor Moss at MF Global said.


"The minutia of sales figures are secondary to the bigger picture right now, certainly in terms of share price drivers."


Flowers said in January - just before Friends unveiled the outcome of a strategy review and plans for possible disposals - that it was considering making an offer for the insurer but has since kept a low profile. Flowers owns 2.7 per cent of Friends.


"We would be prepared to discuss a formal approach if one was made to us. All I can say is we have not had a formal approach from Flowers," Chairman Adrian Montague told reporters.


"The point is coming when the uncertainty is not good for anybody, so we would like to call on Flowers to make their position clear," Montague said on a conference call.


Flowers remains the highest-profile suitor for Friends and reports of an imminent bid, repeatedly played down by sources close to the situation, have boosted the insurer's shares.


But Montague said there were no plans to ask regulators to intervene and set a deadline for Flowers.


"It's early days," he said. "If there is a proposition coming from Flowers, we would like to give shareholders the opportunity to look at it, so we would not like to do anything precipitated... which would not be beneficial to anyone."





Montague also said Friends had received expressions of interest for the three assets it indicated in January that it could sell - high-end Lombard, financial adviser Pantheon Financial and a majority stake in asset manager F&C.


He gave no further details, though an update is expected when or before interim results are posted in August. But he dismissed concerns that the lengthy process was destablising its businesses - a worry expressed by F&C management.


Friends shares, the worst performers among UK peers in the past six months, were up 1.3 per cent at 9.13am GMT at 120.6p, valuing the group at £2.8 billion.


"The only lifeline would be Flowers coming in to buy. This is quite plausible - Flowers is the consummate turnaround artist," Collins Stewart analyst Tim Young said in a research note.


"However, after the profits warning it is highly unlikely that Flowers would pay the previously indicted 175p, let alone the 200-220p that many investors considered reasonable."


Friends said its underlying pretax profit came in at £16 million for 2007, just below the roughly £20 million it had indicated in January, hit by £440 million of charges. That compares with a profit of £509 million in 2006.


On a statutory basis, it posted an underlying pretax loss of £46 million.


Contribution from new business was broadly flat at £206 million, helped by Lombard, where higher margins helped offset weaker fourth-quarter sales.


Friends raised its dividend to 8p from 7.85p. (Reuters)