Traders’ mixed reaction to Aviva’s new Friends
SHARES in Aviva fell while Friends Life rose yesterday as investors gave a mixed response to their planned £ 21billion mega- merger.
Valued at £ 15.8billion, Aviva fell 29p to 510p following Friday’s announcement that they had agreed key terms of a £ 5.6billion takeover of Friends Life.
The deal would create Britain’s largest life insurance and pensions group, bringing Aviva’s 11 million customers together with the 5 million customers on Friends’ books.
Friends’ shares went up 20 ½ p to 368 ¼ p. The announcement took the City by surprise because investors had expected Aviva to focus on growing its existing business after a long period of restructuring.
Analysts at broker Jefferies called it a “strategic shock” to the market, adding: “The successful acquisition of Friends would propel Aviva to undisputed market leadership in UK insurance.”
But Eamonn Flanagan, at broker Shore Capital, added: “In summary, we view this as a disappointing deal from Aviva investors’ viewpoint.”
He said it raised concerns about the pace of progress with Aviva’s restructuring and turnaround programme.
“The key question for us is why Aviva felt the need to do this deal now,” said Flanagan.
Friends Life would give Aviva a large British pensions and insurance business and could generate cost savings and revenue benefi ts estimated at £ 1.7billion. Berenberg bank warned there were risks in trying to bolt the two businesses together.
It said: “While there are without doubt potential strategic merits to a tieup between the two – cost savings, product line synergies, leverage issue mitigation, dominant market shares – we foresee a number of hurdles.”
Analysts at Bernstein added: “We think this is a good deal for shareholders of both Friends Life and Aviva, but on the face of it a better deal for Friends.”
The two companies stressed that there was no guarantee of a formal bid and any offer was subject to due diligence.