Aviva said it had reached a friendly deal to combine with Friends Life that would, if completed, reshape the landscape of the sector
The leaked details of the merger between Aviva and Friends Life on Friday will see Aviva double it size in the protection market and gain access to larger corporations pension schemes.
Friends Life which was formed in 2011 after the amalgamation of Friends Provident, the majority of Axa UK Life and Bupa Health Assurance creating Friends Life Group, ends the year on a high after seeing the value of their shares plummet after the budget annuity pension bombshell.
The insurer has been a potential takeover target ever since radical pension reforms announced in the Budget in March 2014 and with little to no competition fears there should be no regularity reason for the deal not to go through.
The deal, which is approved by both insurers boards is a logical move for Aviva subject to approval from shareholders. Friends Life is the bigger player in pension schemes for large companies, whilst Aviva, has a bigger share among smaller firms.
In its statement, Aviva, which has a market value of approximately £15.7bn, said the takeover would be implemented as an all-share combination with Friends Life, which has a market capitalisation of around £4.85bn.
The deal, it said, would “create the UK’s leading insurance, savings and asset management business by number of customers, with a stronger balance sheet and significantly higher cash flows, enhanced by substantial synergies, from which to accelerate dividend growth”.
Aviva added that Friends Life’s five million customers would benefit from its general, health and life insurance products, while the deal would also strengthen its own balance sheet.
The deal, which values Friends Life’s shares at a 15% premium to their closing price on Friday, will see the smaller shareholders hold roughly 26 per cent of the combined group.
It is clear that Mark Wilson, Aviva’s chief executive, who was parachuted in to replace Andrew Moss at the beginning of 2014, turn around of Aviva is working. The deal will see benefits for the insurer, including Friends Life’s strong cash-generation following a string of regulatory changes will overhaul the way that annuities are sold.