Resolution, the British insurer, rejected a raised £4.7 billion takeover bid from its rival Pearl Group yesterday, saying that only a “compelling offer” would distract it from its planned merger with Friends Provident.

Resolution said that the 691p-a-share offer, at a 2.3 per cent discount to the stock’s closing price on Thursday, significantly undervalued the group’s prospects as part of a combination with Friends. The rejection comes less than two weeks after Resolution rebuffed an initial informal approach from Pearl pitched at 660p a share.

Resolution chairman Clive Cowdery said: “All potential bidders are well aware we will only be diverted from the merger by a compelling offer for Resolution. This second offer from Pearl below our share price falls a long way short of the value of the merger.”

Still, investors cheered the deal and Resolution shares closed up 15p, to 722p a share, making it the FTSE 100’s biggest riser of the day.

Rival insurers have been vying for Resolution ever since the consolidator of closed life funds announced a £8.6 billion merger with Friends.

Pearl, Resolution’s largest shareholder with a stake of 16.5 per cent, is fiercely opposed to Mr Cowdery’s plan to move into the open life book business and has dimissed the Friends tie-up as misconceived.

But Pearl faces powerful opposition in its interest in Resolution from Standard Life, which has teamed up with Swiss Re, the reinsurer for a bid.

Speaking to The Times yesterday, Philip Moore, chief executive of Friends Provident, insisted the insurer could go it alone as an independent company.

Mr Moore maintained he was still moving “full steam ahead” with the deal to merge with Resolution, originally agreed in July. But he said that if the deal to create Friends Financial collapsed, Friends was “perfectly capable” of surviving on its own. If it did so, he still had the confidence of the board and would remain chief executive,” he said.

Of his relationship with Sir Adrian Montague, the chairman, Mr Moore said: “We talk every day. There isn’t a wafer between us on strategy.”

“There is a very, very strong chance that the deal to create Friends Financial will happen,” Mr Moore said. “Nobody has come even remotely close to tabling a deal that is a reasonable alternative.

The Friends chief was speaking as the UK’s fifth-largest insurer formally denied speculation that it needed to raise emergency funds through a rights issue.

The insurer admitted that it would need £400 million over three to four years but said that it would fund this through a bond issue of up to £500 million. “Friends Provident is strongly capitalised, with approximately £1 billion of surplus capital, and has sufficient cash resources for its near-term requirements,” it said.

Mr Moore denied speculation that telling investors about its funding position in the event of the collapse of the deal was tantamount to a “white flag”.

He said Friends was responding to “a bunch of misinformation” being circulated in the market about its funding position and the possibility of a rights issue.

Friends would be seen as particularly vulnerable to a fresh predator if the deal with Resolution failed. It is thought that Zurich Financial, the Swiss insurer, would be interested in a deal with the insurer.

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