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Aviva and Friends Life agree terms for £5.6bn

Aviva has agreed the terms of its takeover of Friends Life, which will see the merged entity become a financial services giant with £309bn assets under management, but with inevitable job losses.

According to the terms of the £5.6bn deal, Friends Life shareholders will own 26 per cent of the combined company, and Friends Life’s proposed second-interim dividend of 24.1p a share to replace its final dividend, resulting in a 2014 full-year dividend of 31.15p a share.

Unveiling the deal, Aviva’s chief executive Mark Wilson said he expected £225m of yearly cost savings within three years of the acquisition.

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He added: “It’s inevitable that when you put two organisations together, there may be some reduction in headcount. But we are going to talk to our people first.”

Some have speculated that job losses post-integration could be in the region of 2,000.

A spokesman for Aviva added: “An integration plan is being compiled and this may involve headcount reduction. Finalisation of the integration plan will be subject to engagement with appropriate stakeholders, including employee representative bodies and unions.”

Britain’s largest union, Unite, warned Aviva against slashing jobs and eroding terms and conditions following confirmation of the takeover.

The union, which represents more than 4,000 members across both companies, said it was fearful that a dash to cut costs could lead to customer service levels deteriorating.

Unite’s national officer Dominic Hook said: “We would urge Aviva to resist the temptation of using the takeover as an excuse to slash jobs and erode terms and conditions of staff who have turned the company’s fortunes around in the past couple of years.

“We will be seeking urgent meetings with both Aviva and Friends Life to press for clarity and assurances about the future of the combined workforce in the new company.”

When asked when shareholders will vote, the spokesman said: “At some point in March – no date has been set as such.”

Analyst Eamonn Flanagan of Shore Capital said the timescale given by Mr Wilson for delivering savings was disappointing.

He said: “We view the merger as a rights issue in disguise, which does little for the strategic positioning of Aviva. We remain puzzled why Aviva felt the need to do it now. Is it a camouflage for issues within its own internal restructuring and turnaround story?

“We reiterate our sell recommendation on Aviva, with Friends Life’s price inextricably linked for now to Aviva’s price.”

Adviser View

Mike Pendergast, financial adviser at Cheshire-based Zen Financial Services, said: “The merger reduces competition and choice with one less provider in the market place – unless they plan to keep two separate brands like Scottish Widows and Clerical Medical did. Whether cost savings will be passed on to the consumer remains to be seen. Inevitably, it will lead to job losses.