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COWDERY WINS HIS FIGHT FOR FRIENDS

WEEKS of price negotiations, multiple public rejections and fierce criticism of his fee structure and corporate governance finally paid off for Clive Cowdery yesterday, as his buyout vehicle clinched the support of Friends Provident for his &pound;1.85bn bid.<br /><br />Cowdery is now set to gain control of the 177-year old life insurer, after Friends&rsquo; board said it plans to recommend to its shareholders his latest offer of 0.9 new shares of Resolution for each Friends Provident share.<br /><br />That compares to an initial offer of 0.8 shares, which was one of three the Friends board publicly rejected in total.<br /><br />In effect, Resolution is offering just over &pound;200m more for the firm.<br /><br />But the tough negotiations have secured other concessions from Cowdery as the Friends&rsquo; board, led by chief executive Trevor Matthews, sought to protect the firm&rsquo;s hundreds of thousands of retail investors.<br /><br />Retail investors who do not want to be left holding shares in Cowdery&rsquo;s Guernsey-domiciled company have been given an escape route via a &pound;500m cash alternative.<br /><br />And the Friends board has secured concessions on Resolution&rsquo;s fee structures, amid concerns Cowdery and his team could plunder large chunks of any value made post-deal.<br /><br />Cowdery&rsquo;s investment management team, which includes former Financial Services Authority boss John Tiner, gets 10 per cent of any profits on the Friends buyout over and above a basic &ldquo;hurdle rate,&rdquo; or minimum performance level.<br /><br />Previously that hurdle was simply the income from UK government bonds, or gilts, over three months, but now a four per cent minimum performance level has been added.<br /><br />This means if gilt yields slump Resolution still has to deliver four per cent growth for the shareholders before it can charge fees.<br /><br />Despite the concessions, most Friends shareholders are facing a loss on their investment if they agree to the deal, compared to the firm&rsquo;s current market value of &pound;1.75bn.<br /><br />Resolution&rsquo;s offer equates to 80.1p for each share of Friends, based on yesterday&rsquo;s closing price, but that is 64 per cent lower than the &pound;2.25 price in early 2007.<br /><br />A large base of institutional Friends shareholders is thought to be pushing for the deal in the belief Cowdery can unlock significant value from consolidating the life sector.<br /><br />The Friends&rsquo; board&rsquo;s decision to recommend a Cowdery deal will be viewed with scepticism by some. In its rejections, the board had called Resolution&rsquo;s structure &ldquo;totally inappropriate&rdquo;.<br /><br />Sources close to the talks said Friends used the governance argument to leverage Cowdery into raising his offer.