The Boards of Friends Provident and Resolution have announced that they have agreed the terms of a recommended all-share merger of the two companies to create Friends Financial Group plc. 

The merger will create a significant new force in the UK life and pensions market. Through its combination of new business capability and cashflow generation, Friends Financial can provide shareholders with both profitable new business growth and growing dividend income. Given its enhanced scale and capability, Friends Financial will be well placed to participate in future consolidation in the UK life and pensions sector over time. 

At the core of the combination is the complementary fit between Friends Provident and Resolution, which extends across products, customers, distribution, financial profiles and management. 

Friends Financial will be a leading UK-based life assurer, valued at approximately £8.6bn with a customer base that combines Friends Provident's approximately 2.5 million customers with Resolution's approximately 7 million customers; a combined embedded value of £7.9bn; assets under management of £165bn; combined operating profits before tax of £860mon an EEV basis; and combined profits before tax of £973m on an IFRS basis. 

The merger is conditional on shareholder, regulatory and other approvals. 

The holding company name for the Combined Group will be Friends Financial Group plc and the Friends Provident name will become the primary brand for UK life and pensions operations after a transitional period. The Scottish Provident brand will, however, be retained. 

It is expected that the merger will complete during the fourth quarter of 2007. 

Commenting on the merger, Clive Cowdery, Chairman of Resolution, said "Today’s transaction marks a turning point in the restructuring of the UK life industry. The next period will focus on sustainable earnings growth and cash returns to shareholders. Friends Financial is exceptionally well positioned to prosper in this new environment." 

Philip Moore, Chief Executive of Friends Provident, said "The two groups share a single strategic vision and a conviction that we can create a powerful new player in the life and pensions industry. The opportunity exists to provide products and services which will attract significant demand from customers and generate value for shareholders. Friends Financial will have all the capabilities in place to deliver on this opportunity." 

Friends Provident plc is being advised by JPMorgan Cazenove. Resolution plc is being advised by Lazard and Citi.