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Resolution to hand back £500m to shareholders

By This Is Money
Updated: 10:29 EDT, 7 June 2011

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Friends Life owner Resolution is to return £500m to shareholders after deciding it is not worth chasing further acquisitions right now.

Clive Cowdery: Buyout firm he set up has nearly £1bn in cash

The buyout firm, set up by insurance businessman Clive Cowdery, has nearly £1bn in cash after large amounts of capital were released from its acquisitions of Friends Provident and Axa UK's life arm.

It will begin a £250m share buy-back programme tomorrow and the rest of the money will be returned in the second half of 2012, possibly through a special dividend.

But Resolution said the latter depended on the delivery of cost savings from its merger of Friends Provident, Axa UK life and Bupa's life and protection unit under the Friends Life brand.

The restructuring includes reducing headcount by 400 during 2011, a move that mainly relates to the planned closure of a former Axa office building in Coventry.

The company said in February that it would not undertake further acquisitions if they dilute the returns likely to be made from the addition of Friends Provident, Axa and parts of Bupa.

Resolution chairman Mike Biggs said: 'Today we have set out a clear and transparent capital framework for the enlarged group.'

The firm added that it was on track to deliver £39m of targeted cost savings by the end of 2011, and £112m by end of 2013.

Shares in Resolution rose 10.9p to 310.8p in trading today. Fellow insurers were also higher – Legal & General increased 2.3p to 115.9p, Standard Life was ahead 3.4p at 207.00p and Admiral gained 27p to l 1,736p.

Resolution took over Friends Provident in a £1.6bn deal in 2009 before buying most of Axa's UK life arm for £2.8bn in 2010.

View from the City

'The significant positive from the buyback announcement is the signal that Resolution will not raise money to make another acquisition,' said Gordon Aitken of investment bank RBC Capital.

'The fear of a dilutive acquisition continues to hold back the share price, in our view.'

Marcus Barnard of broker Oriel Securities said: 'We remain a buyer of the stock as it is cheap in relation to the embedded value, and action it is taking should see it re-rated higher.'

Jonathan Jackson, head of equities at Killik & Co, said: 'Overall, today's announcement is positive, and demonstrates that the group is able to improve operational performance and release cash from the UK life sector.'

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