Friends Provident's new boss may scrap asset sales

By Clara Ferreira-Marques

LONDON (Reuters) - Trevor Matthews, who takes the helm at Friends Provident Plc FP.L this week, looks likely to shelve a faltering plan to sell non-core assets, part of efforts to end months of uncertainty over the UK insurer's future.

Matthews, a driving force in the turnaround at rival Standard Life Plc (SL.L) during his time there, has been on the sidelines during the turbulent past six months, serving out his notice from the Edinburgh-based insurer.

Friends investors hope he will move swiftly to revive the beleaguered group's fortunes, breathing life into a stock whose price has halved this year and which has the cheapest valuation in the sector at around 0.6 percent of embedded value, compared with a sector average of around 0.9 percent.

"He's got a difficult job in restoring the market's faith in Friends Provident, but it is certainly a doable one," fund manager Edward Collins at New Star Asset Management said.

"He's an ambitious guy and the company needs someone like that. Expectations are low and that's a good thing for him."

Britain's smallest blue-chip life insurer has been in the doldrums for months and analysts say turbulent markets have all but sunk its plan to sell non-core assets, as concern grows that any sale would be at a bargain-basement price.

Friends earmarked its stake in fund manager F&C (FCAM.L), high-end insurer Lombard and financial advisory business Pantheon for possible sale in January. But it has already officially dropped efforts to sell Pantheon, expected to fetch around 30 million pounds, after failing to secure a good price.

Meanwhile F&C, which is in the middle of its own turnaround plan to arrest declining earnings and stem haemorrhaging funds, has attracted little interest from buyers. The fund manager's second-largest shareholder Dawnay, Day sold its stake earlier this month at just above all-time lows.

Lombard, which Friends bought in 2005 for around 400 million pounds including earnout clauses, is attracting offers below that, with only two private equity firms left in the running.

"Given the current environment, we expect the company to shelve the plan to dispose of Lombard and to opt to distribute its shares in F&C (in) specie," UBS analysts said in a note.

Others said they would support that decision.

"If they can't find a buyer at a reasonable price, they should walk away -- the only reason they need the money is to increase the dividend, they don't need it for solvency or for investment," one industry analyst said.

A decision to postpone the sales, however, would be the second major strategy turnaround for Friends in under two years.

TOUGH TIMES

Friends was plunged into crisis late last year after a merger with rival Resolution fell through and forced it to abandon key growth targets. It ousted Chief Executive Philip Moore in November, just months after he had taken the helm.

In January, the company's executive chairman Adrian Montague announced a controversial strategy review to slash costs, refocus its core UK business and sell non-core assets.

Since then, however, conditions have deteriorated.

Matthews will need to deliver a plan swiftly but shareholders acknowledge the battered stock and the absence of likely bidders will give Matthews some time to deliver results.

Freeing his hand, a number of senior executives at Friends are expected to leave, including Montague -- criticized for his role in fighting off a takeover approach from U.S. buyout group J.C. Flowers. He could step down later this year.

Ben Gunn, head of Friends' life and pensions business, is also due to leave this year -- leaving Matthews ample room to overhaul the UK business and review what many see as a range of products too exposed to current market weaknesses.

Friends' group pension business is under pressure from regulatory reforms to the pension system, while a consumer downturn and a weakening housing market are hitting its investment and protection units.

One analyst described the status quo as an unwelcome "default option" for Friends and most say pressure on Matthews to deliver a fresh strategy will grow.

A disappointing start to his reign could revive discontent over the decision to brush off Flowers' takeover proposal at 150p per share in cash, now 88 percent above the current price.

The buyout firm is likely to view Matthews' efforts with interest, especially if Lombard -- which Flowers viewed as the jewel in Friends' tarnished crown -- remains within the group.

It could return with another bid attempt when a regulatory block is lifted in October, but at a substantially lower price.

(Additional reporting by Simon Challis; Editing by David Holmes)