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Aviva in £5.6bn takeover talks with Friends Life

Insurance giants Aviva and Friends Life confirmed tonight that they have reached agreement on a merger that will create a new champion in the sector.

Friends has indicated that it will recommend Aviva’s takeover proposal that would be in shares and value Friends at about £5.6 billion.

The two firms said it was possible a deal may not proceed, but progress has been made on a number of terms and conditions.

A combination of the two would create the UK’s biggest insurance, savings and asset management business by number of customers with a stronger balance sheet, higher cash flows and benefits for shareholders in accelerated dividend growth.

Aviva, which is a big employer in Perth, was created out of an accumulation of branded businesses, including Norwich Union and General Accident.

In a statement issued tonight after the market closed Aviva said it would acquire Friends Life on the basis of an exchange ratio of 0.74 Aviva ordinary shares for each Friends Life ordinary share.

In addition, Friends Life shareholders would receive an amount in cash equal to any Friends Life final dividend payment for the 2014 financial year .

Based on Aviva’s closing share price tonight the offer represents an indicative value of approximately 398.9p per Friends Life share.  Friends Life shareholders would own approximately 26%of the enlarged group.

Aviva said the combination would have 16 million customers, of whom 5 million are customers of Friends Life.

The transaction is also expected to lead to a substantial increase in profits and assets under management at Aviva Investors through the addition, over time, of Friends Life’s UK assets under management which are currently principally outsourced, materially increasing Aviva Investors’ total assets under management.

The combined business would have leadership positions across key product areas and be better positioned to take advantage of the evolving UK life insurance market with greater capacity to invest and innovate. Specifically the transaction would lead to a substantial increase in Aviva’s protection value of new business, more than double Aviva’s corporate pension assets under administration and create new opportunities by serving Friends Life’s £2 billion of annual pension vestings.

Over the past two years, Aviva has gone through a major transformation and the merger with Friends Life would accelerate Aviva’s transformation in line with its strategy of increasing group cash flow and investing for growth in its chosen markets.

The board of Aviva believes that the combination with Friends Life would deliver significantly higher cash flows enhanced by substantial synergies, principally through operating efficiencies in the combined back books and the removal of overlapping overheads.

The combination would accelerate the transformation of Aviva’s balance sheet, including reducing leverage and strengthening capital and liquidity. These benefits are expected to increase the enlarged group’s financial and strategic flexibility and support further growth of Aviva’s dividends.

Aviva is required by the takeover rules to state by not later than 5pm on 19 December whether it will announce a firm intention to make an offer for Friends Life.


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