Aug. 10 (Bloomberg) -- Friends Provident Plc, the 177-year- old U.K. life insurer, said it entered discussions with Resolution Ltd. after receiving a revised offer that values the company at 1.86 billion pounds ($3.1 billion).

Resolution, the buyout company founded by insurance entrepreneur Clive Cowdery, offered 0.9 of a share for each Friends Provident share, the Dorking, England-based insurer said in a statement today. The offer, which includes a partial cash alternative of as much as 500 million pounds, is 12 percent more than Friends Provident’s Aug. 7 closing price.

Cowdery is making his third attempt to buy the insurer in the past month after having earlier offers turned down. The former head of General Electric Co.’s European insurance arm is using 600 million pounds raised from a December initial public offering to buy fund managers and insurers. Resolution spokesman Alex Child-Villiers declined to comment.

“It would appear that Friends Provident’s existence as an independent entity is over,” Eamonn Flanagan, a Liverpool-based at Shore Capital Group Plc with a “hold” rating on the stock, wrote in a note to clients. “The question is who next for the Resolution juggernaut?”

Shares Rise

Friends Provident jumped 7 percent to 75 pence in London trading, valuing the company at 1.76 billion pounds. The shares have declined 3.5 percent this year.

Friends Provident, the U.K.’s sixth-biggest life insurer is the “smallest” of the three or four companies Cowdery is planning to merge before selling the enlarged company by 2012, the 46-year-old said last month.

“It’s important to get the first one under their belt because that will get the ball rolling,” said Christopher White, a fund manager a Threadneedle Asset Management in London who helps manage 60 billion pounds including 5 percent of Resolution, speaking before the offer was announced. “Friends Provident gives them a decent platform and once you’ve got the first one you can decide how you want to grow out of that base.”

Standard Life Plc and Legal & General Group Plc, the fourth- and fifth-biggest U.K. life insurers, last week renounced Resolution’s plans, saying they see no immediate benefits of consolidation in the industry.

Index Doubled

The FTSE 350 Life Insurance Index touched its lowest level for 17 years in March as investors speculated insurers would be forced to raise capital to combat falling investment returns and lower sales to U.K. consumers suffering the worst recession in a generation. The index has since more than doubled to 3354.38 points. The measure reached 6414.7 points in May 2007.

Friends Provident, which said it agreed consolidation was necessary in the U.K. insurance market, made a counter-bid for Resolution on July 17 and was rejected by the buyout company. The insurer is 20 percent-owned by 750,000 retail investors, many of whom acquired holdings when the former mutually-owned company first sold shares to the public in 2001.

“The board of Friends Provident believes that this revised proposal has been sufficiently improved to justify entering into discussions with Resolution with a view to recommending its proposal,” Friends Provident said in the statement.

An earlier Resolution offer of 0.82 of its shares for every Friends Provident share was rejected on July 27. The insurer also rejected a previous approach offering 0.8 Resolution shares for every Friends Provident share on July 13.

Friends Provident is expected to release its first-half earnings tomorrow.

To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net

Last Updated: August 10, 2009 12:03 EDT