Pearl Assurance’s £5 billion takeover of Resolution was called into question last night, after the Financial Services Authority (FSA), the City regulator, effectively imposed a three-week delay on the deal between Britain’s biggest closed life fund operators.
The FSA waded into the takeover, initially agreed in mid-November, questioning whether policyholders would be disadvantaged by the timing of Pearl’s plans to free capital from the Resolution life funds.
It was unclear how much capital Pearl wanted from the fund and Pearl declined to comment on the specifics of its plans.
Sources close to the fund, whose executive director is Hugh Osmond, the pubs-to-pizza entrepreneur, said that the firm would still fully commited to buying Resolution.
They emphasised that none of the capital was needed to fund the acquisition. However, the delay, which will force Pearl and the FSA to try to thrash out an agreement, marks the second setback to the bid timetable. It spooked investors, many of which are hedge funds, and sent Resolution shares tumbling by more than 6 per cent. Shares closed down 44p at 672p amid concerns that the deal might fail.
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One hedge fund manager said: “We believe there is a real risk that the deal will unravel. We have seen this happen before recently in the US. We are worried that this means Pearl might walk away.”
The FSA has to approve the change of ownership of Resolution for the acquisition to be completed and the regulator is obliged to protect the interests of policyholders.
Resolution said: “We are surprised and disappointed for the transaction to be delayed. It would be almost unprecedented for a transaction such as this to fail.”
Pearl has agreed to pay 720p a share in cash for Resolution. Completion of the deal was originally slated for the start of this month. The FSA can approve the terms as previously agreed, impose conditions on either party or veto the deal altogether.
If agreement is reached, the takeover could complete in mid-March. Resolution said that it would continue to update its shareholders on progress.
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The delay will be frustrating for Clive Cowdery, Resolution’s founder, who has already agreed to one delay in completing the acquisition while Pearl and its partner, Royal London, agreed on how to divide Resolution’s assets.
Mr Cowdery is preparing for his next financial services venture, but has agreed to remain silent about his plans while the possibility remains that the acquisition could go wrong.
The battle for control of Resolution was a fierce affair.
Mr Cowdery had originally agreed an £8.5 billion merger with Friends Provident in July, when Pearl emerged as Resolution’s largest shareholder and claimed that it was implacably opposed to the deal.
Standard Life briefly broke up the agreed deal with Friends before Pearl won the day with its cash offer at 720p. The ramifications of the end of the Friends merger meant that Britain’s fourth-largest insurer was pushed into a full-scale strategic review.
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Amid plans by Friends to offload its stake in F&C Asset Management, the fund manager, the insurer is being stalked by JC Flowers, the American private investment firm.