British insurance and pensions provider Friends Provident Plc today agreed to a £1.86 billion takeover offer from buyout firm Resolution Ltd.

The deal was recommended to shareholders and values Friends Provident shares at 79.4 pence each  - -  a 6% premium to yesterday's closing price. A cash alternative for the first 2,500 shares held by investors will be offered, benefiting around 700,000 smaller shareholders in the business.

Friends chairman Adrian Montague said the "transaction offers shareholders the choice of an attractive premium on exit or the opportunity to be part of Resolution's first financial services restructuring project."

The deal represents the first step in a planned expansion of Resolution by founder Clive Cowdery, who is reported to be targeting other struggling financial firms. His plan is to restructure companies within two to four years.

Cowdery formed the company in late 2008 after selling an earlier company that was also called Resolution.

Friends Provident had dismissed an earlier £1.7 billion approach as "wholly inadequate."

Today's deal came as Friends reported a 38% drop in first-half underlying profit to £131m sterling, compared with forecasts of £148m. The insurer maintained its dividend.

The group said the outlook for 2009 remained challenging but that it had a strong Insurance Groups Directive (IGD) surplus, estimated at £0.9 billion as of 31 July.

Friends' life and pensions business has 2.5 million policyholders. It managed £7.7 billion of pension funds during the first half of this year.

It employs 3,600 workers and was founded in 1832.