Aviva agrees Friends Life deal

Aviva, Britain’s second-biggest insurer, has reached a preliminary deal to buy smaller rival Friends Life for £5.6bn in shares. A deal would create the UK market’s biggest life assurer, with a joint market capitalisation of £20bn and £300bn of assets. Investors weren’t keen: Aviva’s shares slid 5% on the news.

What the commentators said

Chancellor George Osborne has “turned the market upside down” by decreeing that people will no longer have to buy an annuity, one investor in Friends told the FT. Joining forces should “be a big help”. But the bigger issue, said Nils Pratley in The Guardian, is why Aviva is choosing to bulk up in annuities – and in the UK – just as the outlook has become so uncertain. And having spent a decade “struggling to merge its component parts” (including Norwich Union, Commercial Union and Provident Mutual), why does it want “to dive back into the restructuring game”? Pouncing on Friends “feels like a diversion” at a time when Aviva is trying to decide “what sort of company” it wants to become after “years of drift”. The cost savings had better be good.

“No doubt there will be some gaudy” savings numbers put about to persuade doubters, said James Moore in The Independent. But this sector “has a rotten record” on delivering mergers and acquisitions benefits to its shareholders. Aviva’s CEO Mark Wilson has gained kudos by streamlining Aviva effectively. This deal puts his “stellar reputation at risk”. A key worry is IT, said The Daily Telegraph’s John Ficenec. Integrating all the different computer systems from previous acquisitions “is a Gordian knot”. Royal Bank of Scotland has shown what can go wrong in these circumstances. This deal is all about Aviva snapping up a debt-free firm to repair the balance sheet, said Shore Capital’s Eammon Flanagan, and buying cash flow to finance a dividend stream “they have hinted at”. It’s essentially “a rights issue in disguise”.

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