By Margot Patrick
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- U.K. insurer Friends Provident PLC (FP.LN) finally unloaded its majority stake in F&C Asset Management PLC (FCAM.LN) Friday, cutting it free of losses at the troubled asset management firm and letting it focus on reviving its core businesses.
The insurer handed over the bulk of the 52% holding - worth about GBP170 million based on F&C's closing share price Thursday - to its own shareholders after a fruitless attempt to sell it to a rival asset manager.
Shareholders with at least 2,500 Friends Provident shares were offered one F&C share for every 10 Friends Provident shares they owned, while smaller shareholders were given the option to instead receive cash for their entitlement.
The plan had first been announced in October and was approved by shareholders last month. It became effective Friday after a court sanction Thursday.
For Friends Provident, the demerger puts a line under an acquisition that analysts say was beset with challenges from the start.
The company paid GBP383 million in a 2004 transaction to merge F&C, then owned by Dutch insurance company Eureko BV, with its own ISIS Asset Management arm. Integrating the two investment firms - which by the end of 2005 managed GBP125 billion - proved time-consuming and costly, while shifts in the ways institutions and pension funds allocate their investment money resulted in a steady drain of assets out of the combined company.
By January 2008, Friends decided the business "no longer fit" with a new strategy to focus on its U.K. protection and group pensions products. Those markets have recently been shrinking, though, as a weakened economy means fewer new workers joining pension schemes and a reduction in purchases of home insurance and other personal protection.
In April, Friends Provident reported a 40% drop in first-quarter new business sales.
As Friends Provident sought a buyer for the F&C stake, the asset manager's share price plummeted 70% amid the global credit crisis, cutting the value of the holding to GBP149 million at Dec. 31, from GBP499 million at the start of 2008. In October, the insurer abandoned the proposed sale and said it would instead pursue a demerger.
Barrie Cornes, an analyst at Panmure Gordon with a hold rating and 75-pence target on Friends Provident shares, said the demerger was the "logical thing to do, since the company couldn't get a reasonable price for it."
He said it typically makes sense for insurers to have an in-house asset manager - as do Friends rivals including Prudential PLC, Aviva and Legal & General - but that it is "debatable whether shareholders give those units a good valuation (within the larger group)."
Jason Hollands, a spokesman for F&C, said the demerger would give it more flexibility to manage its capital base and to pursue potential acquisitions. Resolving the uncertainty about its ownership means investment consultants who recommend asset management firms and funds to clients are putting F&C back on their lists, Hollands added.
At March 31, F&C's funds under management were GBP92.7 billion, including GBP22.2 billion it will continue to manage for Friends Provident until at least 2014. F&C reported a GBP50.5 million net loss in 2008, as investors pulled money out of declining stock and bondmarkets.
Friends Provident held back about 5% of the F&C shares to sell and cover costs related to the demerger. Its shares closed flat Thursday at 68 pence, giving it a market value of about GBP1.6 billion. F&C shares closed down 2 pence, or 3%, at 66 pence.
-By Margot Patrick, Dow Jones Newswires; +44 (0)20 7842 9451; margot.patrick@dowjones.com