Resolution Ltd., the insurance buyout firm founded by Clive Cowdery, abandoned plans to sell businesses on the public markets and said John Tiner, head of its management company, will retire.
The boards of publicly traded Resolution Ltd., management firm Resolution Operations and Friends Life, the operating insurance business, will be overhauled as Andy Briggs becomes chief executive officer, the Guernsey, Channel Islands-based company said today. The firm scrapped its return target, said it won’t make any more acquisitions and reported lower earnings.
The stock rose as much as 8.8 percent in London, erasing its drop since the company scrapped plans to return 250 million pounds ($392 million) to shareholders on July 20. Cowdery created Resolution in 2008 to buy, merge and sell U.K. life insurers. After buying three firms, including Friends Provident, it fell short of its initial target of purchasing businesses with a combined embedded value of about 10 billion pounds.
“It removes some of the overhang of deal risks and potential for capital raises, and it removes question marks over the corporate-governance structure,” said Matthew Preston, a London-based analyst at Berenberg Bank with a hold rating on the stock. “Now it becomes very much more like a traditional U.K. life insurer.”
The European debt crisis and changes to how insurers’ capital is regulated made it more difficult to squeeze cash from the acquired companies’ funds and sell firms on the public markets. Resolution had planned to sell shares in its open and closed life insurance businesses separately by 2014, thereby achieving a mid-teens percentage annual return for investors.
So-called open life-insurance companies sell policies to new customers, while closed books are collections of policies that profit by releasing capital as they run off over time.
“It’s the end of the acquisition phase that started in 2009, which was to buy companies with the expectation that other companies would become available during this period,” Cowdery said on a conference call. “In markets as poor as this, people aren’t selling, and as you’ve seen with our comments on the exit, nor should we.”
The shares rose 6.3 percent to 233.9 pence at 9:51 a.m. in London trading, valuing the firm at about 3.3 billion pounds. Resolution is still the second-worst performer in the FTSE ASX Life Insurance Index this year.
It has fallen 40 percent since it began trading in 2008. The share price would need to reach 275.6 pence for the company’s initial investors to break even, given subsequent rights offerings.
Cowdery, who made a personal fortune of at least 100 million pounds buying and selling closed life funds between 2003 and 2007, led Resolution Operations as it charged fees to advise Resolution Ltd., in which he was also an investor, on deals. Resolution Operations will stop charging fees to Resolution Ltd. and will continue to seek acquisitions as a separate, privately-owned entity.
The changes will comply with new U.K. rules on companies that are managed by external entities, Cowdery said on the call.
Tiner, a former head of Britain’s Financial Services Authority, will retire as CEO of Resolution Operations, where he headed implementation of the firm’s strategy. Briggs, the former CEO of Scottish Widows and current head of Friends Life, will replace Tiner as chief of the combined firm, and the companies will merge their boards with the board of Friends Life.
The company has no plans to give up its Guernsey domicile, Chief Financial Officer Jim Newman said on the call, where he also said the rate-of-return target had been scrapped.
First-half operating profit dropped 58 percent to 163 million pounds, missing the 179 million-pound median estimate of six analysts surveyed by Bloomberg.
“The odds of a turnaround are stacked against them, with a portfolio of weak companies with poor track records,” Marcus Barnard, a London-based analyst at Oriel Securities Ltd. who rates Resolution hold, wrote in a note to clients. The changes take place “against a backdrop of rapidly changing regulation and distribution, low interest rates, low gross domestic product growth, poor consumer confidence and unhelpful equity markets.”