Video: Aviva agrees £2.5bn acquisition of Friends Life

Aviva group chief executive Mark Wilson (left) with Friends Life chief executive Andy Briggs.

Aviva group chief executive Mark Wilson (left) with Friends Life chief executive Andy Briggs. - Credit: PA

Insurance giant Aviva is to buy rival Friends Life in a deal worth £5.2billion.

The two companies confirmed details of the merger a week after disclosing that they were in advanced talks about creating the UK’s leading insurance, savings and asset management business by number of customers.

The addition of Friends Life will extend Aviva’s customer base from 11million to 16m and is “financially and strategically compelling”, according to Aviva chief executive Mark Wilson.

He added: “It is one of those rare transactions where the two organisations fit with surgical precision, building on each other’s strengths and addressing the challenges.”

Mr Wilson warned that the tie-up, which is expected to generate annual cost savings of £225m by the end of 2017, will result in headcount reductions. There has been speculation that the merger will mean 2,000 jobs being axed.

Aviva employs around 28,000 staff worldwide including 12,000 in the UK, where it has major offices in Norwich, Sheffield, York and Glasgow, while Friends Life employs 3,500 staff, largely in offices in London, Manchester, Bristol and Salisbury.

Friends Life was created in 2011 following the amalgamation of Friends Provident, the majority of Axa UK Life and Bupa Health Assurance.

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The businesses were rebranded to form Friends Life Group, providing pensions, investments and insurance and retirement income products.

The group can trace its roots back to the 1800s as the Sun Life Assurance Society formed in 1810 and Friends Provident, which was formed in Yorkshire in 1832.

Under the terms of the proposed all-share offer, Friends Life shareholders will own about 26% of the enlarged group.

The move by Aviva comes after a resurgence in its fortunes under Mr Wilson, who took charge nearly two years ago after predecessor Andrew Moss was ousted in the wake of a humiliating shareholder revolt over his pay and the faltering pace of the business.

Since then Mr Wilson has cut hundreds of jobs and disposed of several businesses as part of his turnaround strategy.

Friends Life’s strong level of cash generation is seen as a key motivation for the deal as this should help accelerate growth of Aviva’s dividend.

The company said customers in the combined group would also benefit from being part of a stronger and more diversified group with a wider product range.

However, Shore Capital analyst Eamonn Flanagan said the deal looked like “a rights issue (a cash call on investors) in disguise”, with Aviva buying access to the £2bn a year Friends Life generates from its UK pensions business.

Reiterating his sell rating, Mr Flanagan said: “We remain puzzled why Aviva felt the need to do it now. Is it a camouflage for issues within its own internal restructuring and turnaround story?”