Cowdery buys Axa’s UK arm in £2.8bn deal

RESOLUTION will reshuffle the leadership of its insurance consolidation project after agreeing to pay £2.8bn for the British life and pensions businesses of French group Axa yesterday.

Axa’s UK arm will be merged with Resolution’s existing holding, Friends Provident, to create Friends Life. Trevor Matthews will stay as chief executive but David Hynam, Graham Harvey and Paul McMahon will join the board from Axa as executives.

The post of chief financial officer will be split, with incumbent Evelyn Bourke staying on and Resolution searching for a new number two.

Shares in Clive Cowdery’s buyout vehicle stayed suspended as it confirmed the biggest deal in the insurance sector since Standard Life’s flotation in 2006. Resolution will pay Axa £2.25bn in cash, most of which is to be raised through an unusually-structured rights issue, and £500m in interest-bearing consideration notes.

The purchase is at a 30 per cent discount to Axa UK’s embedded value (EV), an industry measure of an insurer’s worth. It will bring Resolution’s enlarged EV to £6bn – one or two deals short of Cowdery’s target of £10bn by next summer.

Around 2,000 Axa UK staff will move over to work with Friends Provident’s 4,000 employees. John Tiner, chief executive of Resolution, said the group would be pulling out £75m in annual cost-savings by 2014, but he would not be drawn on numbers of redundancies.

Tiner told City A.M. the Axa UK and Friends Provident businesses were “a good fit” adding: “We have got the management team in place to lead the integration. We’re doing it in a way which reduces the risk of the separation and achieves synergies over the next three years.”

Axa will keep its higher-margin wealth management business in Britain and plough the proceeds of the life and pensions sale into faster growing markets such as the Far East. Martin Hepworth of Navigant Consulting described the tie-up as “one of those rare deals that is hard to describe other than a win-win.”

Marcus Barnard of Oriel Securities predicted further consolidation in the sector as surviving UK insurers move towards larger-scale models.



RESOLUTION is out of the ordinary. Because the company is based on the proposition of making deals, it has a savvy in-house M&A team led by Elizabeth Gilbert and Jon Hack.

Gilbert, former co-head of European financing at Goldman Sachs, and Hack, an ex-Lazard banker, did the meat of the transaction work in the two months before it became public.

They structured the payment and designed the £500m deferred consideration notes, which Gilbert describes as “a work of genius”. At a 6.5 per cent interest rate they are relatively cheap, and a clause means Resolution can claw back up to £150m of the notes if it is unable to release significant cash – around £1bn – buried in Axa’s Sun Life non-profit fund.

Also advising on the takeover and rights issue were Joshua Critchley, Matthew Coakes and Martin Eales from RBC Capital Markets, and Jim Renwick, Richard Boath, Stefano Marsaglia and Mark Warham from Barclays Capital.

Critchley, head of equity capital markets at RBC, has previously done stints with Goldman Sachs and Merrill Lynch. He thinks Resolution’s unconventional cash call will catch the attention of other chief executives, but adds: “I don't think this is a silver bullet because you can probably go further with this client than you could with most companies. Resolution explicitly set out with this mandate to involve shareholders very actively in the roll-up of the life insurance sector.”