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 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 600 million pounds
in excess cash flow a year and about 225 million pounds 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'S STRATEGY
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 <1299.HK> 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.
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Holders of Friends Life shares will receive 0.74 new Aviva shares,
valuing the company at 5.6 billion pounds, unchanged from last
month's initial announcement.
Aviva shares fell after last month's announcement due to
uncertainties over the savings numbers.
They were up 2.7 percent at 513 pence at 1035 GMT, while Friends
Life was up 4.8 percent at 384.1 pence. The deal values Friends Life
shares at 394 pence, based on the closing price on Nov 20.
Credit Suisse analysts said they were neutral on the deal.
"While it accelerates near-term cash generation and thus dividend
recovery, it raises longer-term questions about growth once initial
synergies are extracted," they said.
Friends Life shareholders will also receive a second interim
dividend of 24.1 pence per share. Aviva plans to pay a final
dividend of 12.25 pence for 2014, up 30 percent on last year.
Morgan Stanley, JPMorgan Cazenove and Robey Warshaw advised Aviva.
Friends Life was advised by Barclays, Goldman Sachs and RBC Capital
Markets.
(Reporting by Huw Jones and Carolyn Cohn; editing by Jason
Neely/Keith Weir)
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