A pedestrian uses a mobile handset as he passes the headquarters of Aviva in London. Aviva is offering 398.9 pence in stock for each Friends Life share, 15% more than Friday’s closing price.
Bloomberg
Aviva said it’s in talks to buy Friends Life Group Ltd for about £5.6bn ($8.8bn) in the biggest takeover in the UK insurance industry in 15 years.
Aviva, Britain’s second-biggest insurer by market value, is offering 398.9 pence in stock for each Friends Life share, 15% more than yesterday’s closing price, the company said in a statement.
Friends Life, whose shareholders would own about 26% of the combined company, said it’s willing to recommend the key terms of the proposed deal to shareholders. Sales of individual annuities have slumped after the government scrapped rules forcing retirees to buy the product with their pension savings.
Aviva has been seeking to attract more funds to its investments business to cushion the decline. It said a deal would more than double the value of the assets it manages for company pension plans and let it reduce costs. “It’s an incredibly bold move,” Abid Hussain, an analyst at Societe Generale in London, said by telephone. “It brings in a sizable asset into the Aviva Investors business.
There’s a bunch of expenses that can be taken out and there are substantial revenue synergies.”
The takeover would be the biggest among British insurers since CGU’s £7.4bn merger in 2000 with Norwich Union, which created Aviva, according to data compiled by Bloomberg.
The British takeover rules give Aviva a deadline of December 19 to make a formal offer or walk away and, under most circumstances, be banned from making another bid for six months. ‘Transformative Deal’ Aviva rose 1.2% to 539 pence in London trading on Friday, valuing the insurer at almost 16bn pounds.
The stock is up almost 20% this year, the best performance in the nine-member FTSE 350 Life Insurance Index. Friends Life, the second-worst performer in the index, climbed 1.3% to 347.70 pence, for a market value of £4.9bn. Prudential is still Britain’s biggest insurer, with a market value of £38.5bn, and Legal and General Group the third-largest at £15bn.“It’s a transformative deal,” Edward Houghton, an analyst at Sanford C Bernstein in London, said by telephone. “We’ve been talking about meaningful consolidation in the UK life sector for years. This would be it.” Mark Wilson, installed as Aviva’s chief executive officer in January 2013 after a shareholder revolt cost his predecessor his job, has been seeking to turn around the business, focusing on increasing cash flow and eliminating jobs.
Wilson, 48, retreated from the US last year by selling its operations to Apollo Global Management’s Athene Holding Ltd The insurer also struck deals to pull back from Russia, Malaysia and the Netherlands. Osborne Budget Both insurers have been hurt by UK Chancellor of the Exchequer George Osborne’s decision in March.
Aviva’s annuity sales fell 33% in the first nine months of the year. Friends Life’s UK unit, which sells the retirement product to individual customers, posted a 23% slump in the value of new business, a measure of new sales, in the first nine months. Friends Life CEO Andy Briggs described the annuities decision in March as the most significant change “for a generation” that “materially changed the markets that we operate in.”
“Doing something like this where you can increase efficiencies, increase your market position, is probably a good way to combat what’s a relatively difficult operating environment,” said David Havens, a managing director at investment bank Imperial Capital. Clive Cowdery Friends Life was created by entrepreneur Clive Cowdery through the acquisitions of Friends Provident, Axa’s UK life insurance unit and Bupa Health Assurance Cowdery is backing the sale to Aviva, which will allow him to complete his original strategy of acquiring and merging ailing life insurers and cutting costs before finding a buyer.
In exchange for each share they own, Friends Life shareholders will receive 0.74 Aviva shares. The combined Aviva and Friends Life will have 16mn customers, the companies said. Aviva said it sees “new opportunities” from servicing Friends Life’s 2bn pounds of annual pension vestings. “A combination of Aviva and Friends Life 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,” Aviva said.
Morgan Stanley, JPMorgan Cazenove and Robey Warshaw are advising Aviva. Friends Life is being counseled by Goldman Sachs Group, Barclays and RBC Capital Markets.