The sale of the provider of financial planning products, aimed at high and ultra-high net worth investors, was widely speculated about and confirms Friends Life’s ongoing strategy to reposition itself in international markets.
In a Deutsche Bank note, analyst Oliver Steel also predicts that over the next year further announcements could include the sale of Friends Provident International.
“We think this could attract a price tag of more like £600m, and (b) that the £500m – £600m of excess capital currently on the balance sheet can be deployed to a bolt-on acquisition.
“Assuming a 10% ROI on the latter, we think the combined additional boost to per share data from these two could be a further 18% (which is not in our numbers). As such we remain buyers of the shares, though recognising that the next big catalyst could be next year.”
Lombard formed part of the group’s initial purchase of Friends Provident in 2009.
Completion of the deal, subject to regulatory approvals, is expected to occur in the second half of 2014, including a share buy-back with part of the proceeds.
Andy Briggs, group chief executive of Friends Life said Lombard has always had a different profile to the rest of the Group and that its disposal is “in the best interests of both Friends Life and Lombard”.
“This disposal further improves our cash coverage of the dividend and is in line with our strategy to maximise value from each part of the Group. It also allows us to deliver on our commitment to return cash to shareholders when it is appropriate to do so. It moves the Group further towards being a streamlined life insurance company, focused on serving our customers in the UK and our hubs in Hong Kong, Singapore and the UAE through Friends Provident International.”
Menes Chee, managing director at Blackstone, said: “We are excited to be investing in a leading pan-European unit-linked life assurance company. Lombard’s compelling value proposition to policyholders, dedication to distribution partners and strong management and employee team have created a unique franchise. We are committed to the company’s long term growth strategy.”
Deutsche Bank analyst Oliver Steel said the sale was never 100% certain “and the price achieved (£317m up-front, potentially rising to a maximum of £356m in five years’ time) is broadly in line with our own estimate of £300m.”
However, he added that of the £317m up-front consideration, “£56m is in the form of vendor financing (a 7% loan from FLG to Blackstone for 8 years). The amount available for a share buy-back is thus £261m… slightly below our expectation.”
Lombard International Assurance operates across 14 markets and total assets under management of over €24bn.
Blackstone is a global investment and advisory firm with more than 25 years’ experience, notably as alternative asset managers, with total assets under management of $272bn as at 31 March 2014.
