Friends Provident turned the tables on its insurance predator, Resolution, yesterday as City regulators put the proposed tie-up under close scrutiny.

In a bold move, Friends has rebuffed an all-share approach by Resolution, offering instead to take over Clive Cowdery’s vehicle in a classic “pacman” defence. Friends added that it wanted to continue discussions with Resolution, which Mr Cowdery’s company, advised by Credit Suisse, welcomed.

Earlier this week, Friends, advised by Goldman Sachs and JPMorgan, rejected Mr Cowdery’s approach. It cited corporate governance concerns that put the structure of Resolution, which Mr Cowdery plans to use to consolidate the sector, in the spotlight.

Both Resolution and Friends are in talks with the City regulator, the Financial Services Authority (FSA), whose clearance is needed for any tie-up. Resolution was given “fireside” pre-approach guidance by the FSA, while Friends met the regulator earlier this week to give its views.

It is thought that the FSA may look closely at Resolution’s unusual two-tier board structure. Friends would like Mr Cowdery to sit on the executive board of any merged company, something that was not in Resolution’s initial proposal.

The FSA, which pre-cleared Resolution’s structure but has yet to make a decision on a tie-up, declined to comment, as did Friends. A Resolution spokesman said: “The FSA has no issue with the structure of Resolution.”

One leading Friends shareholder called the insurer’s response “elegant”, adding that Resolution should move onshore from its Guernsey base. He speculated that the FSA would be happier if the merged company had a single London listing and a fully accountable board.

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