Flowers prepared to drop Friends bid

By Clara Ferreira-Marques and Simon Challis

LONDON (Reuters) - U.S. buyout group J.C. Flowers is prepared to walk away from takeover target Friends Provident FP.L, frustrated at a lack of contact with the insurer's management, sources close to the matter said.

"There is no light at the end of the tunnel," one of the sources said on Friday, adding the likelihood was Flowers would walk away unless the insurer engaged in discussions.

Friends -- in the throes of a strategy review since it failed to merge with rival Resolution (RSL.L) last year and ousted its chief executive -- last week rejected a 3.5 billion pound cash offer from the buyout group.

It said the 150 pence-a-share proposal undervalued it and was not the basis for a discussion.

Flowers has a regulatory deadline of April 30, by which time it must either make a firm takeover bid or walk away.

Without discussions, however, Flowers and its backers will drop their pursuit of Friends, the sources said, despite a 2.7 percent stake for which they paid up to 165p a share.

The sources added Friends Chairman Adrian Montague continues to refuse contact with Flowers, and the private equity group has also had limited interaction with the insurer's advisers, Goldman Sachs and JP Morgan Cazenove.

"There is an impasse," another of the sources said. "If they are unable to have discussions, there may be no other option."