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22 Jan, 2008

Published: 10:53 Tuesday 22 January 2008
By: Dylan Lobo, Investment News Editor

Shares in Friends Provident made little progress today after brokers Collins Stewart poured cold water on speculation linking Swiss Re with a bid for the UK's sixth largest insurer.

Yesterday US private equity firm JC Flowers indicated it was mulling a 175p per share bid for the firm (FP.) which would value the life insurer at around £4 billion.

Reports since have suggested Swiss Re would enter the race to acquire the UK's sixth largest insurer with the group said to be interested in the group's UK life and pensions arm. South African insurer Old Mutual has also been linked with a possible bid.

But Collins Stewart believes these are unlikely scenarios as Old Mutual would have to insure the successful sale of its Nedbank stake, which would be tough in these market conditions, while Swiss Re has seen its share price halve over the last year.

Collins Stewart is confident Flowers will unveil its proposal for FP in the next few days.

Analyst Tim Young pointed out that Flowers typically holds its cards close to its chest and yesterday's press leaks suggest his strategy for the group is well advanced.

The broker expects an offer will be made before next Thursday when Friends unveils the findings of its strategic review.

Young admitted £4 billion was a significant sum, especially given neither the regulator and credit ratings agencies are keen on gearing above 25%.

Young added that it is not inconceivable that Flowers would sell of FP's high net-worth business Lombard to help fund the deal at a price mooted at around £700 million.

He also pointed out that in the current market turbulence in the asset management sector, the sale of FP's stake in F&C Asset Management (FCAM) is less likely.

At 10.30am shares in Friends Provident were off a penny at 156.9p

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