Aviva agrees to £5.6bn Friends Life takeover

Insurance giant Aviva has agreed to buy Friends Life in a deal worth £5.6bn.

The acquisition – confirmed on 2 December – saw Friends Life shares valued at 394p, including a second dividend of 24.1p, and the company subsequently being rebranded as Aviva. After the deal was announced, Aviva’s share price fell by 3.9 per cent.

Shareholders of Friends Life will own approximately 26 per cent of the enlarged group under the terms agreed.

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The merger will mean the firm will have 16m customers and the group believes Friends Life’s 5m customers will benefit from broader product offer.

Under the terms of the possible offer, which has not yet been approved by the regulator, Aviva would acquire the entire ordinary share capital of Friends Life on the basis of an exchange ratio of 0.74 Aviva ordinary shares for each Friends Life ordinary share.

James Henderson, manager of the Lowland investment trust, said he has concerns about the acquisition because Aviva has acquired “so much”. “This is clean and simple, and there are some good people growing the business, but I am still worried.”

“I am not worried about growth, but about the numbers. I am much happier with holdings such as [insurer] Hiscox, which has a much more disciplined management,” he said.

In his Lowland trust, which is managed by Henderson Global Investors, Mr Henderson has a 1.8 per cent allocation to Aviva, one of his top 10 holdings but, he said, “Aviva sees something going right and finds a way of blowing it.”

Aviva said the deal will be structured so Friends Life shareholders will receive an amount in cash equal to any Friends Life final dividend payment for the 2014 financial year, but they will not be entitled to any additional amount in respect of any final Aviva dividend payment for the year.