Resolution Defends Structure After Friends Prov Rejection
July 21 2009 - 1:50PM
Dow Jones News
Restructuring firm Resolution Ltd. (RSL.LN) Tuesday defended its
management structure and the reasons why it outsources the bulk of
its work, in the latest twist in its takeover attempt of U.K.
insurer Friends Provident Group PLC (FP.LN), which itself is
proposing to buy Resolution Ltd.
Resolution Ltd., in comments by a spokesman and in an emailed
statement, said it has "outsourced the vast majority of its
head-office functions" to Resolution Operations LLP "to protect the
tax status for Resolution Ltd. for its shareholders, as it is
essential that the company is not seen as being managed from the
U.K."
"We are considering our position and looking at ways to move
things forward," the spokesman said.
He said Resolution Ltd. was incorporated in Guernsey to avoid
the double taxation of shareholders, not to avoid paying tax
altogether. The setting up of Guernsey-incorporated investment
companies is common practice among asset managers, he said.
"When we approached the institutions and told them we would have
a Guernsey-domiciled company, they understood it straightaway. It's
not something new or strange or mysterious," he said. Friends
Provident declined to comment Tuesday, but Monday evening it
rejected a sweetened proposal from Resolution Ltd., saying that
Resolution Ltd.'s structure and governance "are totally
inappropriate in a public company context and materially out of
line with currently accepted best governance practice."
Resolution Ltd. said that even though Resolution Operations
manages the head-office functions of Resolution Ltd. as well as its
acquisition and disposal strategy, "all decisions" still have to be
made by the Resolution Ltd. board."
"Resolution Operations cannot make decisions or enter into
agreements on behalf of Resolution Ltd. without express approval
from the Resolution Ltd. board," it said.
Resolution Operations is headed by insurance entrepreneur Clive
Cowdery. Resolution Ltd. Chairman Mike Biggs was formerly the group
finance director of Cowdery's Resolution PLC.
Cowdery made his name after becoming chairman in 2005 of
Resolution PLC, which he rapidly grew by buying life-insurance
businesses that U.K. companies had decided to close. Resolution PLC
is the indirect previous incarnation of Resolution Ltd.
Despite the rejection from Friends Provident on Monday, a merger
deal "should happen," one analyst said.
"We believe that Friends Provident has played its hand too
aggressively in dismissing Resolution's proposals on grounds that
we see as largely spurious," MF Global analyst Trevor Moss
said.
"Friends Provident's refusal to give ground means that either
Resolution walks away from this deal or it appeals directly to
shareholders at the same, or only slightly preferential, terms,"
Moss said.
"If Resolution walks away and nobody else appears, then Friends
Provident could be left out in the cold. The future, on its own
does not look rosy in the context of a consolidating sector with
Friends Provident a marginal player within it," Moss said.
Other experts say that Resolution's management structure is
unusual because it appears to delegate much of its management
operations to a third-party vehicle, Resolution Operations, whose
board membership has no overlap with the board of Resolution Ltd.,
which is the only one accountable to shareholders.
"Resolution's current board structure doesn't appear to be a
conventional board structure for an Official List company," said
Hugh Raven, corporate finance partner at international lawfirm
Eversheds. "That's not to say it's wrong or right, but it is
unusual."
As part of its sweetened - but rejected - proposal, Resolution
said it can offer cash 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."
This differs from just over a week ago, when Resolution proposed
an all-share, no-cash offer of 0.8 new Resolution shares for every
share owned by Friends shareholders. That was rejected, too.
On Friday, Friends Provident turned the tables around and
proposed instead to buy Resolution Ltd. and make it its own
consolidation vehicle.
Friends shares closed Tuesday down 2 pence, or 2.5%, at 71
pence, giving it a market value of GBP1.66 billion. Resolution
closed down 2 pence, or 2.5%, at 88 pence. It has a market
capitalization of GBP584 million.
Company Web site: www.resolution.gg,
www.friendsprovident.co.uk
-By Vladimir Guevarra, Dow Jones Newswires. Tel. +44 (0)
2078429486, vladimir.guevarra@dowjones.com
(Marietta Cauchi contributed to this report.)
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