Friends Provident to float

Mutual insurance group Friends Provident yesterday stunned the City by announcing plans to float on the stock market and pay windfalls averaging £2,500 to 1.7m policyholders.

The insurer's surprise declaration that it intends to convert to a plc before the end of 2001 comes just days after it came under attack from an internet-based group of carpetbaggers seeking demutualisation payouts.

However, the company's board insisted that the decision to seek permission to convert had nothing to do with this campaign.

Analysts say that Friends Provident, the UK's third-largest mutual life insurer, could have a flotation value of £4bn-£4.5bn, which would mean average payouts of £2,300-£2,700 per qualifying policyholder. However, the 750,000 with-profits policy holders are likely to get significantly more than this, while it is thought the 1m eligible non-with-profits policyholders would get smaller payouts probably in the region of a few hundred pounds.

Friends Provident, based in Dorking, was founded by Quakers in 1832 and has more than 2m policies in force and £38bn of assets under management. It has long been considered a takeover target and just days ago there were reports that it would put itself up for auction rather than float, if the carpetbagger challenge succeeded.

Halifax, Abbey National and Prudential have been named as likely bidders. But a spokesman said the company was not up for sale and the board was "determined to take this business through to a listing".

The company said it had grown quickly in the past few years and the decision to recommend abandoning 168 years of mutuality "has not been taken lightly".

However, it had concluded that converting to a plc "would provide a more flexible corporate structure for Friends Provident to achieve its strategic goals in today's competitive marketplace and for members to gain the benefits of share ownership while continuing to enjoy the benefits of their policyholding".

A special meeting for members to vote on the plans will be held next year, with flotation set for the second half of 2001.

A spokesman said it was right that the with-profits policyholders - who include people with endowment policies, pensions and with-profits savings plans - should get larger windfalls because they have effectively provided the finance to expand the business over the years.

The company said that new policies dated May 4 or later would not be eligible for wind falls. Some observers expressed surprise that it did not close its doors to carpetbaggers as soon as the Friends Provident Vote Campaign action group announced last month that it would be attempting to force the insurer to ballot members on demutualising.

The group's spokesman, Gordon Hart, said he was "pleased but stunned by the announcement". He added: "The company was obviously well down the road towards flotation when we knocked on the door."

Yesterday's surprise announcement is a blow to fellow mutual insurer Standard Life, which a week ago decided to allow members to vote on whether it should demutualise but is determined to remain a mutual.

Friends Provident has made several acquisitions in recent years. In late 1997 it took over Scottish fund manager Ivory & Sime and it bought insurer London & Manchester for £750m the following year.