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04 Feb, 2008

Published: 12:47 Monday 04 February 2008
By: Chris Marshall, Insurance Correspondent

(update) Life insurer Friends Provident could be broken up and sold to rival insurers, if the expected takeover bid by JC Flowers proves successful, analysts are predicting.

The private equity giant had indicated its intention to explore a bid some weeks ago but the result of Friends Provident's strategic review announced last week looks to have made the insurer more vulnerable to a buy-out.

Speculation is mounting that JC Flowers will seek to take advantage of Friends Provident's distressed share price to make a formal bid for the insurer as early as this week.

Friends Provident shares slumped significantly last week but have rallied a little today to a price of 142.5p by 13.24pm up 6.5p or 4.8% on the day.

Analysts expect more potential bidders to come along, although it is thought unlikely that a rival insurance company would take on the whole business.

Peter Eliot, an analyst at MF Global Securities in London, said: 'The other insurance providers would have trouble turning the company around. It is much more likely that they would buy little bits from people like JC Flowers.'

He said JC would retain very little of the business if its bid was successful.

KBW analyst Grieg Paterson said: 'Management refused to rule out a full takeout of Friends Provident. JC Flowers has stated an intention to acquire the company and has built up a circa 3% stake. We believe others could also enter the fray.'

Collins Stewart analyst Tim Young also pointed out that it is a buyers market. 'There is no shortage of suitors for players in the UK market, where demand is increasing, competition diminishing and profitability set to improve. Chris Flowers has already indicated an interest in Friends Provident and we think he is deeply serious.

'There remains the question, why would one buy Friends rather than L&G but perhaps this is the superior turnaround potential'

Flowers may hope to move on the insurer before incoming chief executive, the former UK head at Standard Life Trevor Matthews, joins the firm in six months.

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