UK insurance giant Friends Provident has rejected a £3.5 billion cash takeover proposal from U.S. private equity firm JC Flowers because it significantly undervalues the company, the company said today.
Friends said it received the 150 pence per share indicative proposal last Thursday and JC Flowers had indicated the offer price would be reduced in the event that Friends Provident paid shareholders the 2007 final dividend of 5.3p a share.
Shares in the troubled insurer closed at 120 pence on Friday in a market in which financial shares have suffered as a result of the subprime crisis.
Investors had hoped for a bid of in excess of 160 pence – the embedded value of the shares reflecting the actuarial value of the company.
Friends has been overhauling its strategy since last year, when a planned merger with rival Resolution failed, prompting the departure of its chief executive and posing persistent questions over the strength of its balance sheet.
Flowers first announced in January that it was considering making an offer for Friends.
Hopes of a new offer meant Friends' share price jumped 4% to 125.6p, giving the business a market capitalisation of £2.9 billion.
The demise of the merger with Resolution raised concerns that Friends would not have enough financing to fund expansion.
Bosses pledged a renewed focus on protection and group pensions earlier this month as they announced plans to down-size following a strategic review. But the overhaul - which will also see its asset management arm F&C and other non-core businesses offloaded - failed to inspire investors, as did news that profits dived by 96% to just £16 million in 2007.
Friends said today it remained "focused on the implementation" of its strategic review. The group has hired Trevor Matthews from Standard Life as chief executive in a bid to turn around its fortunes, but he will not be able to start until the summer.
Flowers already owns more than 2% of Friends shares and is said to have been discussing side deals with a number of potential groups which may be interested in buying parts of Friends Provident.
Friends employs almost 4,000 staff, excluding the F&C business, across offices in locations including Manchester, Exeter, Dorking and Salisbury