JC Flowers plans to meet Friends Provident “as soon as possible” to discuss an offer for the struggling insurer.

Yesterday Friends announced a 97 per cent fall in underlying pre-tax profits to £16 million for last year and is six weeks into a turnaround programme that will see it sell three businesses and cut 600 full-time positions.

JCFlowers, the US private equity firm, has been pondering an offer for Friends since last November but yesterday Sir Adrian Montague, the insurer's chairman, called on Flowers to table a formal offer.

Morgan Stanley is believed to be advising Flowers but analysts are sceptical that the firm would put up the 200p a share that the insurer's board wants. An informal proposal from Flowers valued Friends at about 175p per share. Friends' shares closed up more than 4 per cent at 124p yesterday. Tim Young, a Collins Stewart analyst, said: “It is highly unlikely that Flowers would pay the previously indicated 175p, let alone the 200p-220p that many investors considered reasonable.”

A Flowers spokesman said yesterday: “We'd welcome a chance to meet as soon as possible to discuss our ideas.” But sources close to Friends said that the company was aware that it would be difficult for any bidder to put together a firm offer in the current market climate and had asked for a formal offer to “call Flowers' bluff” and buy time until Trevor Matthews, the insurer's new chief executive, started in August.

Sir Adrian said that he would not ask the Takeover Panel to issue a put up or shut up notice against Flowers. “If there's a sensible offer there, I wouldn't want to act prematurely and deny the shareholders the opportunity to consider it,” he said. “[But] I don't want to twiddle my thumbs for ever.”

Friends plans to sell its European wealth management business Lombard, the financial adviser Pantheon Financial and a majority stake in F&C, the asset manger, and to focus on profitable group pension business rather than volume. Sir Adrian said that the insurer had received “a steady flow of expressions of interest”.

Friends' profits were hit by a £400 million charge as a result of a change to the way the company reserves against future claims. The Financial Services Authority has allowed insurers to reduce the amount of cash they hold against policies that are likely to lapse. Usually insurers spread the cost of selling the policy over the life of the product but because the reserves now recognise the policy life as having been cut short, the costs must also be brought forward.

Jim Smart, Friends' finance director, confirmed yesterday that he would leave in August, shortly after Mr Matthews arrives at the company.

The gathering storm

November 2007
Philip Moore, Friends chief executive, resigns after its agreed £8.7bn merger with Resolution is scuppered. Friends admits it cannot continue in its current form. JC Flowers expresses interest

January 2008
Flowers is willing to pay 175p a share, valuing the business at about £4b. Friends looks for 200p per share

January 2008
Friends announces £440m write down, a near halving of the dividend and the need to put three operations up for sale. Some 600 jobs are cut

January 2008
Flowers increases its stake in Friends to 2.7 per cent.

March 2008
Friends reveals 97 per cent plunge in underlying profit of £16m for 2007, down from £509m the previous year. Flowers agrees to meet to discuss the firm’s plans

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