Phoenix CEO: Merger Talks Failed on Gap Between Share Price, True Worth
November 23, 2011 by Robert O'Connor
Best’s News Service – November 21, 2011 03:56 PM
LONDON – The failure of talks between Phoenix Group Holdings and Resolution Group about a possible merger reflected some frustration within Phoenix at the gap between its share price and what it sees as its true worth. That view was offered by Clive Bannister, group chief executive of Phoenix Group Holdings.
In announcing the end of the talks in parallel weekend announcements, each company said it was responding to “recent press speculation.”
Phoenix was trading at 5.25 pounds ($8.29) on the afternoon of Nov. 21, up 6.9% from the previous close. These levels compare to an “economic value” of more than 12 pounds a share, Bannister said. This disparity, he said, translates into an “excessive discount” for a company whose strengths include the likelihood of generating 750 million pounds to 850 million pounds in cash flow this year.
Bannister would not name a price that might appeal to Phoenix.
“Our business has two parts,” Bannister said. “We are the U.K.’s largest consolidator of closed life funds. We look after 6.2 million pensioners and people with life policies. On the other side, we have a $100 billion asset management company.”
Resolution said its interest in Phoenix was part of its U.K. Life Project, through which it “continually investigates a variety of bolt-on opportunities. Any acquisition must have a strong financial case and enhance returns to shareholders. The hurdle to executing any particular transaction is therefore high.”
“The U.K. Life Project continues to progress well,” Resolution added in its statement.
In announcing the failure of the talks with Resolution, Phoenix also said it has received an approach from U.K.-based private equity firm CVC Capital Partners Ltd.
CVC was a member of the private equity consortium that acquired Dutch-domiciled Lloyd’s underwriter Brit Insurance Holdings NV in October 2010 (Best’s News Service Oct. 26, 2010).
“Like any good plc, our board will listen to approaches made to us by respectable organizations,” Bannister said of the CVC interest.
Bannister would not disclose either the financial details of any talks nor the identities of any other possible suitors. Discussions with CVC, he said, are at “very early stages.” He described the two approaches as “flattering.”
“Anything that draws attention to the value that is there for our shareholders is important,” Bannister said. “And clearly that’s what’s taken place in the last 48 hours in a public way by the approaches that we have received from these two companies.”
Carlos Wong, senior director, analytics at A.M. Best Europe – Rating Services Ltd., noted both Resolution and Phoenix have been interested in acquiring closed life funds. But he said price is a question mark in the current financial climate.
“I think there will always be room for discussions and expressions of interest in businesses which are consolidating, where shareholders are looking to accelerate their balance sheets and release their capital and improve their returns as soon as possible,” Wong said.
As for CVC’s interest, Wong said closed life funds have attracted attention from private equity funds. Private equity, he said, offers advantages in the form of leveraging and a lower level of disclosure.
After the reports of the Resolution-Phoenix talks appeared in two British Sunday newspapers, Eamonn Flanagan, an equity analyst at Shore Capital, correctly forecast that Phoenix’s shares would “respond favorably.”
Bannister speculated that Resolution’s withdrawal from the talks was sparked by unwanted publicity. “Companies don’t like having private discussions taking place under the glare of publicity and in the public view,” he said.
The flurry of interest will not deter Phoenix from its determination to “stick to the knitting,” Bannister said. “It’s not always fashionable but we have multiple opportunities to carry on generating value in our life company.”
Bannister re-emphasized Phoenix’s decision to stay out of the acquisitions market for the “next 18 months.” But he does expect opportunities in the closed life sector to emerge as the international regulatory outlook becomes clearer.
“I have no doubt that financial institutions that have closed life businesses will look at the capital associated with those businesses and realize that there are entities such as ours whose only purpose in life is to manage that sort of money and that sort of business,” Bannister said.
Attempts to reach Resolution and CVC for comment were unsuccessful.
To hear the full interview with Clive Bannister go to http://www.ambest.com/media/media.asp?RC=194187
(By Robert O’Connor, London editor: Robert.OConnor@ambest.com)BN-NJ-11-21-2011 1556 ET #