July 13 (Bloomberg) -- Friends Provident Plc, the 177-year- old U.K. insurer, rejected a 1.7 billion-pound ($2.7 billion) takeover approach from Clive Cowdery’s Resolution Ltd., saying the bid was too low.

Resolution’s offer of 0.8 of a new share for every Friends Provident share was “wholly inadequate,” the insurer said in a statement today. Resolution said it’s still considering making a bid, part of which would be in cash. Friends Provident rose 13 percent to 68 pence in London trading, valuing the Dorking, England-based company at about 1.6 billion pounds.

Cowdery is making his second attempt to buy the insurer in three years after raising 600 million pounds in December to buy insurers and fund managers. Friends Provident posted a net loss of 541 million pounds in 2008 after losses on investments more than doubled, and has been limiting sales to group pension and protection products to preserve capital. The company is also cutting jobs to combat declining U.K. pensions sales.

“Friends may not end up putting up too much of a fight,” said Peter Eliot, a London-based analyst at MF Global Securities Ltd., who has a “buy” rating on Friends Provident. The insurer has operations that are too small “and costs that need to be cut,” Eliot said.

Resolution slipped 2.5 pence, or 2.8 percent, to 87.75 pence for a market value of 579 million pounds.

“We are open-minded about the benefits of industry consolidation, but at this stage, the pace, direction and value of your consolidation strategy is speculative and uncertain,” Friends Provident Chairman Adrian Montague said in the statement.

Consolidation Strategy

Cowdery, the former head of General Electric Co.’s European insurance arm, is using the money he raised in the December initial public offering to buy insurers and fund managers weakened by the financial crisis. The Guernsey-based company plans to sell on the insurers it acquires within four years to larger rivals or take them public in IPOs.

“What Clive can easily do with Friends is knock it together with various other businesses to complete the portfolio and save costs,” MF Global’s Eliot said. He cited Legal & General Group Plc, which has fallen by a third this year, as one potential merger target.

Cowdery built up his previous company by purchasing closed life insurance funds from companies such as Abbey National, owned by Banco Santander SA, and RSA Insurance Group Plc, which considered the funds surplus to requirements because they tied up capital that could be used to write new business elsewhere. The 46-year-old boosted the units’ profits by packaging them together and cutting administration costs.

Previous Offer

Cowdery made a 4.2 billion-pound bid to buy Friends Provident in July 2007. The offer foundered when Pearl Group Ltd., run by Hugh Osmond, bought his company for 5 billion pounds in May 2008.

Friends Provident and Resolution share many institutional investors who are likely to back Cowdery, Eliot said. Lloyds Banking Group Plc is the biggest single shareholder of both Resolution and Friends Provident, according to Bloomberg data. Aviva Plc and Legal & General also hold stakes in both firms.

Credit Suisse Group AG is advising Resolution. Goldman Sachs Group Inc. and JPMorgan Cazenove are advising Friends Provident.

To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

Last Updated: July 13, 2009 11:56 EDT