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    AV.   GB0002162385

AVIVA PLC

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Aviva in £5.6 billion deal to buy Friends Life after pensions shake-up

11/21/2014 | 04:08pm EDT
A man walks past an AVIVA logo outside the company's head office in the city of London

LONDON (Reuters) - British insurer Aviva (>> Aviva plc) said on Friday it had agreed terms on a possible deal to buy rival Friends Life (>> Friends Life Group Ltd) for 5.6 billion pounds ($8.8 billion) as British pension reforms put pressure on insurance companies to find new business.

LONDON (Reuters) - British insurer Aviva (>> Aviva plc) said on Friday it had agreed terms on a possible deal to buy rival Friends Life (>> Friends Life Group Ltd) for 5.6 billion pounds ($8.8 billion) as British pension reforms put pressure on insurance companies to find new business.

Pension providers are rushing to reinvent themselves after the government in March unexpectedly removed obligations for people to buy an annuity, or income for life, at retirement, sharply cutting annuity sales.

Aviva's all-share offer of 0.74 shares for every Friends Life share implies a 15 percent premium to the closing price on Friday. The board of Friends has indicated it will recommend the offer, which equates to 399 pence per Friends share, the companies said in a statement.

The deal would strengthen Aviva's balance sheet and reduce its leverage, as well as boosting its assets under management, it said.

Brokerage Panmure Gordon & Co downgraded Aviva following the announcement.

"Whilst there will be some cost synergies and it could accelerate Aviva's dividend paying capability it is also at odds with management's previous comments about Aviva being too UK-centric," Panmure analyst Barrie Cornes wrote in a research note.

The brokerage cut its target price to 505 pence per share from 585p previously and downgraded its recommendation to "Hold" from "Buy".

Mark Wilson, former boss at Asian rival AIA (>> AIA Group Ltd), joined Aviva as chief executive two years ago and has pushed a restructuring agenda across the group, selling off businesses, cutting costs and improving profitability.

Created in 2008 by entrepreneur Clive Cowdery as Resolution, Friends Life was known for buying up closed books of business from other insurers and using its scale to make cost savings in managing them as they gradually expire, or "run off", rather than writing new business itself.

Friends Life has a stronger presence in the growing "bulk annuity" market, in which insurers take on the risk of part or all of a company's pension scheme.

"The transaction would...more than double Aviva’s corporate pension assets under administration and create new opportunities," the statement said.

Friends Life posted a 7 percent drop in operating profit in the first half, while Aviva saw a 4 percent rise.

The two companies combined would have a stock market valuation at Friday's London market close of around 20.5 billion pounds.

Under the terms of the offer, Friends Life shareholders would own around 26 percent of the combined group. They would also receive an amount in cash equal to any Friends Life final dividend for the 2014 financial year.

Friends Life shares are down 2 percent this year, while Aviva has gained 20 percent.

(Additional reporting by Kate Holton; editing by Jason Neely)

By Roshni Menon and Carolyn Cohn

Stocks treated in this article : Aviva plc, Friends Life Group Ltd, AIA Group Ltd

© Reuters 2014
Stocks mentioned in the article
ChangeLast1st jan.
AIA GROUP LIMITED -1.15% 94.9 End-of-day quote.-0.11%
AVIVA PLC -0.54% 385.2 Delayed Quote.18.45%
JASON CO., LTD. 0.19% 540 End-of-day quote.-19.16%
RISE, INC. -3.70% 26 End-of-day quote.8.33%
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Financials
Sales 2021 46 772 M 64 293 M 64 293 M
Net income 2021 2 260 M 3 106 M 3 106 M
Net cash 2021 8 664 M 11 910 M 11 910 M
P/E ratio 2021 6,82x
Yield 2021 5,70%
Capitalization 15 130 M 20 814 M 20 798 M
EV / Sales 2021 0,14x
EV / Sales 2022 0,14x
Nbr of Employees 28 596
Free-Float 97,1%
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Mean consensus OUTPERFORM
Number of Analysts 21
Last Close Price 385,20 GBX
Average target price 466,10 GBX
Spread / Average Target 21,0%
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Managers and Directors
Amanda Blanc Chief Executive Officer & Executive Director
Jason Michael Windsor Chief Financial Officer & Director
Mark George Culmer Non-Executive Chairman
Nitinbhai Babubhai Maganbhai Amin Chief Operating Officer
Michael Mire Independent Non-Executive Director
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