Friends Life’s shares rocket following merger talks

Friends Life has seen its share price rocket by 5.81 per cent since Friday’s news that it is in talks with Aviva over a possible merger.

On Friday (21 November) Aviva issued a statement following “recent press speculation”, confirming it has reached “agreement on the key financial terms” of a buyout that could be worth £5.6bn; a deal that some have suggested is inspired by the pension changes due to come into force in April.

This morning, Friends Life’s share price opened at 367 pence per share, up from Friday’s close of 347.7p. However, Aviva’s share price has fallen by 3.9 per cent at the time of writing, opening at 522p per share.

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Under the terms of the offer, which remains subject to due diligence and regulatory approval, Aviva would acquire the entire ordinary share capital of Friends Life on the basis of an exchange ratio of 0.74 ordinary shares for each Friends Life share.

Based on Aviva’s closing share price on 21 November 2014, the deal would represent an indicative value of approximately 398.9 pence per Friends Life share, representing a premium of 15 per cent.

Friends Life shareholders would own approximately 26 per cent of the enlarged group.

Aviva’s statement said the deal would “create the leading insurance and savings business in the UK” with 16m customers, around 5m of which would come from Friends Life.

It added the transaction would lead to a substantial increase in its protection value of new business, more than double its corporate pension assets under administration, and create new opportunities by serving Friends Life’s £2bn of “annual pension vestings”.

The statement read: “The transaction is also expected to lead to a substantial increase in profits and assets under management at Aviva Investors through the addition, over time, of Friends Life’s UK assets under management which are currently principally outsourced.”

The deal has been agreed subject to “reaching agreement on the other terms and conditions of any offer and the completion of mutual due diligence”.

Under takeover rules, Aviva is required, by not later than 5.00pm 19 December 2014, to either announce a firm intention to make an offer or announce that it does not intend to make an offer.

The statement added: “There can be no certainty that Aviva will proceed to make an offer for Friends Life. A further announcement will be made in due course.”

According to FTAdviser sister title the Financial Times, Friends Life is expected to generate £370m of cash this year, largely from a multibillion pound pool of closed life assurance funds acquired under founder Clive Cowdery.

Friends Life’s board also decided to suspend the previously announced buyback programme until agreement on the terms and conditions of any offer and the completion of mutual due diligence.

The buyback programme commenced on 31 October and to date 9,057,000 ordinary shares have been purchased for an aggregate consideration of £29.8m.