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The rival suitors in the increasingly ill-tempered bidding for Resolution plc continue to pull out all the stops to ensure their offers triumph. Scotland’s Standard Life plc is reportedly revisiting its agreement with bid partner Swiss Reinsurance Co. to secure extra funding for its £4.9 billion ($10.2 billion), or 712 pence per share, offer.
The Financial Times reported Nov. 5 that the Edinburgh, Scotland-based financial services group has asked the Zurich group to consider:
STORMY WEATHER A Standard Life spokesman would only say that the company has been considering its options since Resolution a week ago backed out of the agreed takeover, because rival bidder Pearl Group Ltd.’s 24% stake would easily have allowed it to block the transaction. Indeed, Standard Life and its advisers at Merrill Lynch & Co. and UBS probably thought the day couldn’t get worse when Resolution confirmed Oct. 29 it had withdrawn its backing for the £4.9 billion ($10 billion) takeover agreement sealed three days earlier. But their Blue Monday culminated with a rare public reprimand from the U.K. Takeover Panel. After the market had closed, the regulator said that Standard Life had breached the U.K.’s Takeover Code by announcing it was reviewing the terms of its offer and may make a general bid for Resolution. This would require a simple majority of acceptances and avoid the 75% approval threshold implicit in the earlier scheme-of-arrangement takeover. Standard Life’s problem is rival bidder Pearl Group Ltd. of Peterborough, England. Not only is Pearl’s 720 pence per share all-cash offer superior to the 716 pence in stock and cash offered by Standard Life and partner Swiss Reinsurance Co., Pearl also owns 24.2% of its target and therefore could easily have blocked the original Standard Life deal. But the Takeover Panel decided Standard Life’s announcement that it may change its bid without committing itself to doing so breached the Takeover Code. And unusually, rather than requesting a clarification behind the scenes, it chose to chastise Standard Life in public. Even before the Takeover Panel announcement, the odds looked stacked against Standard Life, which will find it extremely difficult to raise its offer to a level that would prompt Pearl to play ball. But in withdrawing its recommendation, London-based Resolution had at least made it known that it still favored a deal with Standard Life over a takeover by Pearl, enraging the Hugh Osmond-backed closed life funds specialist by refusing to switch its recommendation. Resolution’s retreat came less than three days after it consigned to the rubbish bin another merger agreement. On Oct. 26, it pulled out of the £8.7 billion nil-premium fusion with Friends announced in July, which first sparked what has become one of the most acrimonious bid battles in the U.K. in recent years. PONYING UP In mid-October, the bidding for Resolution looked set to widen, with Swiss Re considering an offer. The Daily Telegraph reported Oct. 12 that the Swiss reinsurer had become the latest party to conduct due diligence on Resolution, as it raced to wrap up its Friends merger by the end of November. The Financial Times’ Lex column added that France’s Axa SA and London-based Old Mutual plc were also interested in Resolution and that Zurich Financial Services Group was rumored to be eyeing Friends. The news came as the Takeover Panel prepared to impose a “put up or shut up deadline” on Pearl and Standard Life to either make bids by Oct. 25 or Oct. 26 or withdraw. Standard Life had been silent since announcing in September that it may make a cash-and-stock bid for London-based Resolution. The Edinburgh group was reportedly scrabbling around to secure a partner after Pearl on Oct. 10 revealed that it had teamed up with Royal London Mutual Insurance Society Ltd. to give its bid more oomph. Royal London has agreed to buy £1.25 billion of assets from Pearl if its bid for Resolution succeeds and provide £300 million of debt financing. But Pearl hadn't yet managed to convince Resolution’s board of its suitability as a partner. On Oct. 10, Resolution said executives had rejected a £4.5 billion offer, pitched at 660 pence per share. SAY WHAT YOU MEAN In September, Pearl Group made official its attempt to lower investors’ expectations about any bid for Resolution , indicating an offer would be well below the prevailing market price. The bidder had been considering making an offer since late July, shortly after Resolution agreed to the nil-premium all-share merger with Friends. The news came a day after the Pearl camp appeared to be on a fishing expedition, using the Financial Times Thursday, Sept. 27, to test the waters for an offer of around 660 pence per share, or £4.5 billion. The next day, Pearl elaborated on its thinking. It said Resolution’s stock had been buoyed by bid speculation. And it said any bid would take into account factors including:
Pearl is obliged to offer at least 660 pence per share, or £4.5 billion in total, since that is the highest price it paid for Resolution shares as it built up a 16% stake. At the time it noted that an offer was not guaranteed. But investors shrugged the uncertainty off because it seemed at least one bidder, Standard Life, was waiting in the wings. TESTING THE WATERS The Financial Times on Sept. 27 carried its story on Pearl’s plans on the front of the Companies & Markets section. Without citing sources, the paper reported that Pearl has the financing in place for an offer. But it noted that any offer at 660 pence would be a gamble and that discounted offers have a poor track record of success. Investors’ reaction to the report didn't provide much encouragement. By midafternoon that day, instead of slashing the price of the shares and sobbing into their cold coffees, they had knocked just 4 pence off their value, making them down to 691 pence. Pearl’s interest in Resolution of London has been slow-burning. Having competed with Resolution in the bidding for a slew of closed-life insurance funds being offloaded by European institutions, it turned suitor just after its peer teamed up with Friends. Pearl announced in late July that it wanted the group to pursue alternative strategies and gained firepower to force the issue through a 16% stake in Resolution. Since then, Pearl had been waiting for Resolution and Friends Provident to post their merger documentation, which they did Oct. 8, before playing its hand. The picture became cloudier when Resolution and Friends on Sept. 10 changed the terms of their transaction to ensure it needs the approval of a simple majority of Resolution shareholders rather than 75%. And then on Sept. 19, Standard Life threw its name into the ring. Pearl may need to get hold of some more impressive tackle before casting its line in the water again. —Laura Board
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