Aviva is considering a possible 5.6 billion pound merger with Friends Life. As Hayley Platt reports the proposed transaction shows how insurers are having to rethink they way they do business after the British government changed rules covering annuities.
It's an amicable tie-up and possibly a necessary one UK insurance firms Aviva and Friends Life are planning a £5.6 billion merger. They've agreed the terms of an all-share deal giving Friends Life a 15 percent premium. Its shareholders would get a 26 percent stake in the new company. A statement on the merger was rushed out following a leak, sending investors rushing to sell Aviva shares. Its stock fell more than 5 percent. While Friends Life rose 7 percent initially before falling back below 5 percent. Chris Hughes is from Reuters Breakingviews. SOUNDBITE:Chris Hughes, Editor Breakingviews, saying (English): "The market reaction is saying hang on a moment, what's going on here, this is a company that we thought was moving away from the UK, now it's bulking up in the UK and we don't have all of the financial details about synergies and all the rest of it." The proposed transaction shows how insurers are rethinking they way they do business after the British government made it easier for investors to cash in their annuities. Aviva says the deal will strengthen its balance sheet, boost assets and cut costs. But Michael Hewson of CMC Markets says there's still a long way to go.. Michael Hewson, market analyst, CMC Markets, saying (English): "In terms of cost savings it looks like a good deal, certainly in terms of it increasing its exposure to the UK market remain to be convinced. Certainly Friends Life share price is up significantly on the back of it. I think investors are a little bit undecided at this point in time." Friend's Life is considered a good buy for Aviva because it currently outsources most of its £100 billion of assets under management. Aviva could take part of that back. Both firms have until December the 19th to complete the deal.