LONDON: British insurer Aviva agreed terms yesterday for a £5.6bn ($8.8bn) all-share takeover of rival Friends Life, responding to pressures caused by pension industry reform.
Pension providers are rushing to revise their product ranges after the government in March surprisingly removed obligations for people to buy an annuity, or income for life, at retirement, hurting sales. Aviva said the merger creates a market leader with 16 million life insurance customers. It is expected to generate £600m in excess cash flow a year and about £225m in annual cost savings by the end of 2017.
Andy Briggs, current group chief executive of Friends Life, will become CEO of Aviva UK Life, with Mark Wilson continuing as CEO of the enlarged Aviva Group. Briggs told reporters that the two businesses worked well together. Friends Life’s corporate pension business is skewed to larger firms, while Aviva focused on smaller ones, alleviating any concerns about a reduction in competition.
“There’s a very good complementary fit,” he said.
After the changes announced by the government in March, insurers have focused on alternative products such as pensions drawdown which allow savers more freedom over the amount of money they withdraw each year, or “bulk annuites” — taking on the risk of company defined benefit pension schemes.
Wilson said there would likely be job losses among the combined staff of more than 15,000 and savings from office moves but would not give any specific details. Analysts have speculated that Friends Life would close its London office.
The deal is a significant step for Wilson, who was hired as CEO of general and life insurer Aviva from Asian rival AIA two years ago. He has pushed through a restructuring, selling off businesses and cutting costs.
Analysts said the cost savings from the Aviva/Friends Life combination were higher than expected but would take several years to be achieved.
The merger has the backing of Clive Cowdery, who founded Friends Life in 2008 when it was known as Resolution. Aviva is the product of a 2000 merger between CGU and Norwich Union.
Holders of Friends Life shares will receive 0.74 new Aviva shares, valuing the company at £5.6bn, unchanged from last month’s initial announcement. Reuters
