Friends makes flat debut

July 9, 2001 Posted: 0937 GMT

LONDON (CNN) -- Friends Provident, the 170-year-old UK insurer, made a flat stock market debut on Monday, delivering a windfall for policyholders.

Shares in the insurer rose 1 percent to 227 pence in early trade. The UK's biggest flotation this year was priced at 225 pence a share, at the lower end of expectations, valuing the company at £3.7 billion ($5.2 billion).

The insurer priced its shares at the bottom end of a indicative price range of 210-270 pence after global markets tumbled last week in the wake of profit warnings from a rash of companies. Friends has warned sales are slowing.

Some 1.7 million policyholders stand to receive between £450 and £3,000, depending on how many shares they were awarded through the demutualisation scheme. The number of shares a policyholder receives depends on the value of their policies and how long they have held them.

Policyholders and savers received a staggering £36 billion ($50 billion) windfall at the height of a UK demutualisation programme in 1997, according to Reuters..

In the late 1990s many building societies and insurers, which are owned by their policyholders, savers and members, decided to list their shares on the stock market, enabling them to participate in mergers and acquisitions as competition in the insurance and pension market intensifies.

Demand for Friends Provident shares were close to three times oversubscribed by institutional investors, such as fund managers and pension funds, the company said.

Friends Provident raised about £1.4 billion to fund its business. The insurer received £566 million worth of applications from customers for additional shares at a preferential price of 213.75 pence.

About 25 percent of those policyholders that received shares opted to sell them when trading started. For those shareholders that are prepared to hold on to their stock bigger windfalls could be in the offing, if the insurer attracts the attention of another financial group.

"To an in-market consolidator, Friends Provident is worth a lot more; efficiently structured, an acquirer could pay £4.5 billion pounds and still create value for its shareholders," Investment bank Schroder Salomon Smith Barney said in a research note to investors.

The flotation makes Friends Provident the UK's fifth largest insurance group by market value, behind the likes of CGNU (CGNU), Prudential (PRU) and Legal &v General (LGEN), according to Reuters.

Note: Search results will open in a new browser window