Aviva falls on Friends Life merger plan doubts

Mon Nov 24, 2014 10:02am EST
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By Carolyn Cohn

LONDON (Reuters) - Shares in British insurer Aviva (AV.L: Quote) fell more than five percent on Monday reflecting uncertainty about the potential benefits of the company's 5.6 billion pound (8.79 billion US dollar) plan to merge with rival Friends Life FLG.L

The two insurers have agreed outline terms for a possible all-share deal, in which Aviva would offer a 15 percent premium to Friends Life's share price to give those investors a 26 percent stake in the new company.

The proposed transaction, first announced on Friday, would create a market leader in British life insurance with a combined market capitalisation of about 20.2 billion pounds.

The deal aims to bolster the balance sheet of Aviva, helped by Friends Life's strong cash generation, as well as boosting assets under management and cutting costs.

Shares in Friends Life FLG.L rose as much as 8.2 percent. They were about 4.2 percent higher by 1425 GMT

Investors and analysts see the plan as a move towards much-needed consolidation in Britain's insurance industry given big pension changes that will give people more say over how they invest their retirement savings.

"The initial assessment suggests the valuation for the deal is fair," said Alessandro Valentini, fund manager at Causeway Capital, which owns Aviva shares.

But Aviva and Friends Life have not yet given figures on cost savings or other benefits from their merger plan.   Continued...

Pedestrians walk past an Aviva logo outside the company's head office in the city of London March 5, 2009. REUTERS/Stephen Hird