Resolution confirms Axa talks

14th Jun 2010 07:10

Life insurer Resolution suspended its shares this morning as it confirmed it is in discussions to buy AXA's UK life assurance businesses for £2.75bn.The businesses to be acquired are AXA's UK protection and annuities arms and also its group pensions business.Resolution will raise £2bn from a pre-emptive rights issue, issue £0.5bn of Deferred Consideration Notes to AXA and pay the rest with bank debt. In its statement, Resolution added it intends to merge the AXA businesses with its Friends Provident arm. The businesses are complementary and have a good operational fit, offering protection products and group pensions and accelerating Friends Provident's strategy in annuities, it said. Axa will retain its wealth management and direct protection operations.Resolution expects to realise "significant cost synergies, principally from rationalisation in the areas of sales and marketing, overheads, operations and support costs, taking into account the partially outsourced nature of AXA's UK business."The UK life insurance sector has been tipped as ripe for consolidation. Resolution formed in 2008 with a plan to shake up the UK life sector but has managed no deals so far this year. There were strong rumours it could buy the UK arm of Prudential if that came up for sale, but the prospect of that has seemingly been quashed for now by the collapse of the Pru's deal to buy AIG's Asian arm for $35.5bn."This move will take some pressure off Resolution's management, who having targeted two or three acquisitions this year have so far not announced any," Oriel Securities said.The UK disposals will give AXA more scope to pursue acquisitions in Asia, an area it had identified as key to its plan to triple emerging market profits by 2015, the broker added.Resolution wants an agreement with Axa to be reached before the end of June. It would be classified as a reverse takeover of Resolution under the UK Listing Rules.