Liberty International is set to acquire 100 per cent of Pearl and will be rebranded to Pearl following the deal’s completion.
Liberty paid £8.5 a share which represents a 50 per cent discount to the estimated net embedded value at completion of £17 per share.
At £8.5 per Liberty share, Pearl is valued at £1.12bn.
Under the proposed transaction, Liberty will inject up to £510m into Pearl and restructure its balance sheet to reduce its liabilities by approximately £560m.
The combined effect of the cash injection and restructuring will be to strengthen Pearl’s balance sheet by over £1bn.
Under the restructure, 52.8 million new ordinary shares will be issued to Pearl’s current shareholders and other stakeholders. Liberty may also issue up to a further 35 million new ordinary shares dependent on expected future earnings.
Liberty has signed definitive agreements with Pearl and will call for an extraordinary general meeting of its shareholders in the second half of July to vote on proposals.
At completion, Pearl Group is expected to have a gross embedded value of approximately £5.2bn and bank debt and other liabilities of £2.9bn.
Pearl Group shareholders will be investing a further £75m prior to completion for which they will receive new Liberty International shares.
At completion Pearl is expected to be owned approximately 60 per cent by Liberty International shareholders, 29.5 per cent by Pearl Group’s existing shareholders and 10.5 per cent by other stakeholders.
Pearl Group management will continue to be led by its existing chief executive officer Jonathan Moss and chief financial officer Simon Smith.
After the completion of the transaction, a new board will be formed with a new chairman and a majority of independent directors.
A spokesman for Liberty International says: “After long and extensive due diligence, we have concluded that, for our shareholders, Pearl Group is a uniquely attractive opportunity, available at a compelling valuation.
“It is clear to us that Pearl is a large, innovative, well managed and well governed business that should have strong potential long term cashflows.”
He says that despite recent turmoil in the financial markets, Pearl’s life funds have remained financially resilient, as have its underlying long-term cash generation, its profitability and its inherent value.
A spokesman for Pearl Group says: “We share Liberty’s views of the substantial value still to be created in Pearl and about the potential consolidation opportunities in a sector which has been fundamentally repriced.”
He adds: “The capital structure being put in place will more than meet all regulatory capital requirements, accelerate the deployment of our surplus cashflows, lead to our London listing and cement Pearl’s position as the pre-eminent closed fund consolidator in the UK.”
He says the deal will benefit all stakeholders including policyholders.