Flowers working on sweetened Friends bid-report

LONDON (Reuters) - U.S. buyout firm J.C. Flowers is working on a sweetened bid worth around 3.5 billion pounds for insurer Friends Provident Plc FP.L, the Sunday Times said.

Friends said on March 31 that it had spurned an indicative proposal from private equity firm Flowers worth 150 pence per share, but the Times said advisers for Flowers were considering a new bid priced between 155p and 160p per share.

Friends had said the proposal at 150p a share significantly undervalued the firm and did "not represent a basis for discussion", signalling the two sides had not held talks.

Friends has previously said 160p was the embedded value of the shares, reflecting the actuarial value of the company.

Friends' shares closed down 0.4 percent on Friday at 133.90 pence, giving it a stock market capitalisation of $6.2 billion. The shares have shed 18 percent so far this year.

The board of Friends has concerns about the financing of any bid by Flowers, the paper said, not giving a source for its report. Flowers was not immediately available for comment.

Britain's takeover regulator said on Thursday that Flowers must make a firm takeover offer for Friends by the end of this month or walk away. If Flowers says it does not intend to bid it would not be able to return for a further six months.

Flowers has been stalking Friends for several months after saying in January it was considering making an offer and that it had bought 2.7 percent of its target.

Friends shares have tumbled from over 190p a year ago, on a failed merger with rival Resolution (RSL.L), questions over the strength of its balance sheet, troubles in its core UK business, a dividend cut and a big charge for customers leaving early.