Resolution to hand £500m back to investors

Resolution, a buyout firm set up by insurance businessman Clive Cowdery, has nearly £1bn in cash after large amounts of capital were released from the acquisition of Friends Provident and Axa UK life.

Resolution consolidated the businesses under the Friends Life brand, along with Bupa’s life and protection unit, and said there were currently no other acquisition opportunities available.

The company said it would return the cash to shareholders partly through a £250m share buy-back programme starting today.

The additional £250m would be returned in the second half of 2012, possibly through a special dividend, but depended on the company delivering cost savings from the merger, which includes reducing headcount by 400 throughout 2011.

Resolution took over Friends Provident in a £1.6bn deal in 2009 before buying most of Axa’s UK life arm for £2.8bn in 2010.

The 400-strong headcount reduction mainly relates to the planned closure of a former Axa office building in Coventry.

The company said in February that it would not undertake further acquisitions if they dilute the returns likely to be made from the addition of Friends Provident, Axa and parts of Bupa.

Resolution chairman Mike Biggs said: “Today we have set out a clear and transparent capital framework for the enlarged group.”

The company said it was on track to deliver £39m of targeted cost savings by the end of 2011, and £112m by end of 2013.

Shares gained nearly 4 per cent in value following the announcement.

Jonathan Jackson, head of equities at Killik & Co, said: “Overall, the announcement is positive, and demonstrates that the group is able to improve operational performance and release cash from the UK life sector.”

RBC Capital Markets analyst Gordon Aitken wrote in a note: “The significant positive from the buyback announcement is the signal that Resolution will not raise money to make another acquisition,”

“The fear of a dilutive acquisition continues to hold back the share price, in our view.”

Resolution said it had set a high threshold for further British life insurance acquisitions, pledging to shun any deal which threatened its plans to hand back cash to investors.