Aviva and Friends Life merger could provide substantial synergies

As Aviva and Friends Life Group propose a merger Sheridan Admans, investment research manager at The Share Centre, explains what it means for investors.

“Aviva and Friends Life Group have announced a proposed merger, with Aviva offering 0.74 shares for each Friends Life share. The offer assumes a price of 400 pence per share for Friends Life, a 15% premium to the closing price on 21 November.

“Should the deal happen analysts believe synergies would be substantial, with Aviva’s balance sheet benefiting as would its pensions and protection operations. Friends Life investors should benefit from improved growth prospects.

“This is not a done deal. Friends Life investors may push for a higher premium or other interested parties may show their hand, however the latter is assumed to be unlikely given the size of the deal and the implication that may pose. Friends Life has suspended its share buyback programme for the time being.

“Due to the merger activity we are downgrading Aviva to a ‘hold’ recommendation while it goes through firming up the terms of its deal with Friends Life. We continue to have faith in Aviva’s recovery outlook and any share price weakness may prove a good entry point. We also recommend Friends Life as a ‘hold’ for investors during this process.”