Aviva in $8.8 billion deal to buy Friends Life after pensions shake-up

Fri Nov 21, 2014 4:08pm EST
 
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By Roshni Menon and Carolyn Cohn

LONDON (Reuters) - British insurer Aviva (AV.L: Quote) said on Friday it had agreed terms on a possible deal to buy rival Friends Life FLG.L for 5.6 billion pounds ($8.8 billion) as British pension reforms put pressure on insurance companies to find new business.

Pension providers are rushing to reinvent themselves after the government in March unexpectedly removed obligations for people to buy an annuity, or income for life, at retirement, sharply cutting annuity sales.

Aviva's all-share offer of 0.74 shares for every Friends Life share implies a 15 percent premium to the closing price on Friday. The board of Friends has indicated it will recommend the offer, which equates to 399 pence per Friends share, the companies said in a statement.

The deal would strengthen Aviva's balance sheet and reduce its leverage, as well as boosting its assets under management, it said.

Brokerage Panmure Gordon & Co downgraded Aviva following the announcement.

"Whilst there will be some cost synergies and it could accelerate Aviva's dividend paying capability it is also at odds with management's previous comments about Aviva being too UK-centric," Panmure analyst Barrie Cornes wrote in a research note.

The brokerage cut its target price to 505 pence per share from 585p previously and downgraded its recommendation to "Hold" from "Buy".

Mark Wilson, former boss at Asian rival AIA (1299.HK: Quote), joined Aviva as chief executive two years ago and has pushed a restructuring agenda across the group, selling off businesses, cutting costs and improving profitability.   Continued...

 
A man walks past an AVIVA logo outside the company's head office in the city of London March 5, 2009. REUTERS/Stephen Hird