Standard Life shares staged a relief rally today on news of its withdrawal from the bidding battle for closed life insurance firm Resolution.
Shares in the group raced 9% ahead after it yesterday admitted defeat in its attempt to takeover so-called “zombie” fund specialist Resolution for £4.7bn (€6.6bn).
The move paves the way for bidding rival Pearl – a major shareholder in Resolution – to secure the deal.
But Standard Life investors reacted with relief to its decision not to be drawn into a potentially expensive takeover tussle.
The Edinburgh-based insurer had seen its cash-and-shares offer battered by a falling share price, with the stock on Friday hitting its lowest level since demutualisation last year.
Standard Life had been expected to try and salvage its takeover hopes by restructuring or possibly upping the bid, but yesterday ruled out both options, saying neither would offer shareholders a good deal.
Analyst Barrie Cornes of Panmure Gordon said while shares were on the rise today, the group’s reputation had suffered a knock.
“The move on Resolution will have damaged its standalone credibility and it will face questions on strategy going forward,” he said.
The market will want to know why it had wanted to do the deal in the first place, given its “previous conservative mantra of steady organic growth post IPO (flotation)”, according to Mr Cornes.
He added: “In particular, investors will want reassurance that it does not need additional cash, that there was no split on the board, why the third quarter new business figures were so disappointing and what is the strategy for the group going forward.”
There were rumours in recent days of a division among board members over the deal and its benefits.
The group also revealed last month that sales of its flagship DIY pension products – self-invested personal pensions (SIPPs) – had fallen in the third quarter.
The figures had largely gone unnoticed amid the Resolution takeover saga, but are now expected to come back into sharp focus.
Standard Life would have become one of the UK’s leading life and pensions firms with about seven million customers if its bid had been successful.
Standard planned to keep almost all of Resolution’s new business capacity, including its asset management operations and protection business for financial products such as mortgages.
It would have gained access to a potential two million new customers through more than 700 branches of mortgage bank Abbey, which has a distribution agreement with Resolution.
Standard had also agreed to sell Resolution’s “zombie” life insurance businesses, which are closed to new members, to insurance group Swiss Re for £2.35bn (€3.3bn).
It is thought that Swiss Re may have played a part in the decision to pull out of the bidding war, with analysts speculating that it declined to contribute any more for the offer.
But Standard Life is not the only group to have lost out in race to secure Resolution, with the group having originally called off an £8.5bn (€12bn) merger with Friends Provident to recommend Standard’s bid.
Resolution, which specialises in managing funds that are closed to new business, was formed in September 2005 from the merger of Resolution Life Group - set up in 2003 – and Britannic Group.
In September 2006, Resolution acquired the life businesses of Abbey National, after growing on the back of acquisitions such as the UK arm of Swiss Life and the closed life insurance operation of Royal & Sun Alliance.
It has around seven million customers and invested assets of more than £61bn (€86.6bn).