By David Wighton
Aviva PLC announced plans for a GBP5.6 billion ($8.8 billion)
takeover of Friends Life Group in an all-share deal that it said
would create the largest insurance, savings and asset-management
company in the U.K.
Aviva said the deal, which the Friends Life board has indicated
it will recommend to its shareholders subject to agreement on other
terms, would significantly increase its cash flow and accelerate
the growth of its dividend.
Under the terms of the offer, Friends Life shareholders would
get 0.74 of an Aviva share for each Friends share. Based on the
closing prices on Friday, the terms represent an indicative premium
of 15% to the Friends' price or a 28% premium to its three month
average.
Aviva said the premium took into account the impact of the Value
Share, an incentive deal agreed with senior Friends Life
executives, including founder Clive Cowdery, which pays out in the
event that the company is sold. This was worth GBP133 million at
the end of last year and will be considerably higher under the
terms of the deal, according to someone close to the deal.
The companies weren't planning to announce the deal for some
weeks and were forced to move by a leak. People close to the
companies cautioned that due diligence still had to completed.
Shares of Friends Life, which was founded by Mr. Cowdery to buy
up U.K. life insurance funds, have been hit by the planned reforms
to pension savings in the U.K. announced by the government in
March. But they have partly recovered in recent weeks, boosted by a
share buyback. In contrast, Aviva's shares have risen sharply since
the arrival of new chief executive, Mark Wilson, in January last
year. Mr. Wilson, who was former chief executive of Hong Kong-based
life insurance company AIA Group, replaced Andrew Moss, who left
following shareholder criticism of Aviva's performance and
executive pay.
Mr. Wilson has pushed through a restructuring, which has
included the sale of many of Aviva's operations in countries where
it has a small presence.
The companies didn't comment on the future role of Friends
Life's top management in a combined group including its chief
executive, Andy Briggs, and chief financial officer, Tim Tookey.
Earlier this year, Mr. Cowdery stepped down from the board of the
company, which was originally called Resolution.
Aviva, which provides general insurance, life insurance and
pensions, said the combined group would be "better positioned to
take advantage of the evolving U.K. life insurance market with
greater capacity to invest and innovate".
Aviva added: "Specifically the transaction would lead to a
substantial increase in Aviva's protection value of new business,
more than double Aviva's corporate pension assets under
administration and create new opportunities by serving Friends
Life's GBP2 billion of annual pension vestings."
The company said the deal would also materially increase Aviva
Investors' total assets under management, increasing the importance
of fund management to the group. Over time, Aviva would take over
the management of Friends Life's assets, most of which is currently
outsourced, it said.
"The board of Aviva believes that the combination with Friends
Life would deliver significantly higher cash flows enhanced by
substantial synergies, principally through operating efficiencies
in the combined back books and the removal of overlapping
overheads." Aviva said it also would strengthen its balance sheet
and reduce leverage.
Because the statement was rushed out, the companies weren't in a
position to estimate the cost savings, according to a person close
to the deal.
Under the terms of the deal, Friends Life shareholders would own
about 26% of the enlarged group which at the closing prices on
Friday would be valued at more than GBP21 billion.
Aviva is being advised by Morgan Stanley, JPMorgan Cazenove and
Robey Warshaw while Friends Life is advised by Goldman Sachs,
Barclays and RBC Capital Markets.
Write to David Wighton at david.wighton@wsj.com
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