London: British life insurers Friends Provident and Resolution yesterday laid merger speculations to rest by announcing that the two had agreed to merge, creating a new entity, Friends Financial Group, with a market capitalisation of £8.6 billion in an all-share deal. (See: Friends Provident finds Resolution in merger talks)

On completion of the deal, Friends Provident shareholders would own around 49.1 per cent of the new company and Resolution investors would own 50.9 per cent.

Both companies said the merger was expected to boost earnings per share by 2009 and would generate at least £100 million pounds in annualised pre-tax cost savings by the end of 2010.

Asset management would remain a core part of the business and Resolution''s asset management arm would be merged with F&C Asset Management. The new group will have £165 billion of funds under management, and will have a customer base of about 9.5 million people, mainly in Britain.

Friends Provident, whose history dates back to 1832, has around 2.5 million life and pensions policyholders, and 5,000 staff, while the much younger Resolution was
established in 2003 and employs 3,500 people who serve around 7.0 million customers.

Last year Resolution acquired the insurance arm of Abbey National, the British banking subsidiary of Spanish banking group SCH, for £3.6 billion that enabled it to join London''s FTSE 100 leading shares.

Resolution''s chairman and chief executive, Clive Cowdery and Mike Biggs will stay on in their roles in the merged company.

The merger is conditional on shareholder and regulatory approvals, and was expected to complete by the final quarter of 2007.