Job losses expected in insurance tie-up
Aviva snaps up rival Friends Life in £5.6 billion insurance deal
Aviva has today confirmed its £5.6 billion acquisition of Friends Life in a move that will create a company with 16 million customers and will be seen as part of a consolidation of the insurance industry.
The acquisition will also be regarded as a key milestone in Aviva’s turnaround under chief executive Mark Wilson who has been credited with reviving its fortunes.
However, the merger is also likely to lead to job losses across the two companies. Aviva employs more than 2,000 staff in Scotland, mainly in Perth.
In a statement this morning, Aviva said there would be £225 million of “cost synergies” by 2017, adding that “an integration plan is being compiled and this may involve headcount reduction. Finalisation of the integration plan will be subject to engagement with appropriate stakeholders, including employee representative bodies and unions.”
Former Scottish Widows boss Andy Briggs (pictured), the current group chief executive of Friends Life, will become CEO of Aviva UK Life and will join the board of Aviva as an executive director.
It is expected that Sir Malcolm Williamson, the current chairman of Friends Life, will join the board of Aviva as senior independent director and it is anticipated that a further non-executive director of Friends Life will join the board of Aviva.
The acquisition will add £70 billion to Aviva’s assets under management, increasing the total by 29% to £309bn.
The deal, announced this morning, values each Friends Life share at 394p, representing a 15% premium to the closing share price of 343p on 20 November and 27% to the average price of 310p over a three-month period.
Aviva proposes a 2014 final dividend of 12.25p per share, representing a 30% increase on the 2013 final dividend per share, and resulting in a 2014 full year dividend of 18.1p per share. The Aviva believes the acquisition would be broadly neutral to its operating earnings per share once full run-rate synergies are achieved, expected by the end of 2017.
John McFarlane, chairman of Aviva, said: “Aviva’s recent success and sound growth and return prospects already present a compelling investment proposition and enable us to advance our strategy through acquisition as well as organic growth.
“The proposed acquisition not only consolidates Aviva’s leading position which Aviva has established in the UK, it is expected to enable a much stronger dividend flow and balance sheet position than would otherwise have been possible. It also offers Friends Life Shareholders an attractive outcome.
“This move enhances, and is consistent with, our investment proposition of “cash flow plus growth”, and I commend it to shareholders.”
Wilson, CEO of Aviva, said: “This acquisition is financially and strategically compelling. It is one of those rare transactions where the two organisations fit with surgical precision, building on each other’s strengths and addressing the challenges.
“Consistent with our investment thesis of cash flow plus growth, this transaction will increase our cash flows and reduce our leverage and support continued growth in our dividend. It secures our leadership position in our home market and gives greater flexibility to drive growth in other parts of the Aviva group.
“This is good for shareholders and customers alike who will benefit from being part of a stronger, more diversified and resilient business with a wide range of products.”
Sir Malcolm Williamson, chairman of Friends Life, said: “The Board is pleased to recommend the offer which strongly supports our focus on generating value for shareholders.
“Friends Life has built a strong and successful business under Andy Briggs’ leadership. By combining the market-leading strengths of the two businesses, we will create the UK’s leading insurance, savings and asset management business, delivering additional scale and efficiencies. This will provide enhanced outcomes for the increased customer base and for new customers into the future.”
Briggs, who left Lloyds Banking Group to succeed Trevor Matthews at what was then Friends Provident, said: “Friends Life has always been about maximising value for shareholders and delivering strongly for customers. The compelling combination of Friends Life and Aviva provides an excellent opportunity to accelerate our existing strategy and growth, generating value for shareholders faster.
“The enlarged group brings together complementary strengths and a commitment to delivering the very best propositions, service and expertise for customers. Together we will have scale leadership positions across our chosen growth markets, ensuring that the new group is well placed to take advantage of the opportunities presented by the rapidly evolving UK life insurance market.”