JC Flowers will not produce a 'knee-jerk reaction' after Friends Provident rejected its takeover bid on Monday, but is to 'spend time reflecting' on its position, a spokesperson for the private equity firm said.

Although Friends flat-out rejected Flowers' 150p per share cash bid, a takeover deal between the two still appears to be in the offing.

The insurer's chairman Sir Adrian Montague was quoted in the press on Tuesday saying that there was 'no grand canyon' between the two on price. He said that Flowers had 'started down the track' in terms of putting a reasonable proposal together.

The bid represents a premium to the market but would have forced the insurer to slash its dividend; something Friends would have been unlikely to consider.

Tim Young of brokers Collins Stewart, wrote in a note: 'We can not agree with Adrian Montague that Flowers' offer significantly under-values the group.'

He said that Friends was in a position of significant weakness, having 'destroyed massive shareholder value over the past year, with a flimsy recovery strategy, an untested CEO…limited capital resources and apparently no other bidders'. Young said that these risks were fully discounted in the price.

One leading Friends shareholder - a Citywire AA-rated fund manager who asked to remain anonymous - suggested that the latest JC Flowers bid for the group may be deliberately undervaluing the company to allow it to 'withdraw gracefully.'

Friends Provident's shareprice stood at 128.2p at 9.50 on Tuesday morning, having risen 4.5p or 3.6%