Resolution bids for Friends Provident

By Victoria Howley and Myles Neligan

LONDON (Reuters) - Life insurer Friends Provident FP.L has received an all-share merger proposal from buy-out firm Resolution (RSL.L), two sources familiar with the situation said on Sunday.

The proposal, set out in a letter to Friends Chairman Sir Adrian Montague, does not offer a significant premium to the insurers' shareholders and is likely to be rejected, the sources said.

Resolution, founded by entrepreneur Clive Cowdery, and Friends Provident both declined to comment.

Analysts have been expecting Resolution to pursue its first deal since the Financial Services Authority closed an investigation into the vehicle in May.

Resolution raised 600 million pounds from investors in a stock market listing last December and is expected to return to shareholders if extra cash is needed for acquisitions.

Resolution plans to approach other insurance companies if it cannot agree a deal with Friends Provident, one of the people said, adding the vehicle has had discussions with a number of parties and wants to make three or four acquisitions in the next 18 months.

News of Resolution's approach was reported first in the Sunday Times and Sunday Telegraph newspapers. Friends Provident is likely to turn down the offer on the grounds of price, The Telegraph said.

Resolution would keep Friends Provident's top management team in place, the Sunday Times said. The insurer is headed by Chief Executive Trevor Matthews, who joined from rival Standard Life (SL.L) in July last year.