In a joint statement published on the London Stock Exchange this morning, the firms set out details of the deal and how the new life company will operate.
Under the proposed acquisition, Friends Life shareholders will receive 0.74 new Aviva shares for each Friends Life share they currently own. Once the deal is completed, Friends Life shareholders will own approximately 26 per cent of the new life company.
Furthermore, the merger is expected to generate £225m of “run-rate annual cost synergies” by the end of 2017, which Aviva has valued at around £1.8bn. These figures have not been audited.
The potential sources of cost savings identified include integrating lifeco operations, “recapturing” previously outsourced asset management contracts and cutting corporate and development costs across the two businesses.
Around 60 per cent of these savings are expected to come from the life business.
Andy Briggs, currently group chief executive at Friends Life, will become chief executive at Aviva UK Life and will join the Aviva board.
Friends Life chairman Sir Malcolm Williamson will also join the Aviva board as senior independent director, while a further Friends Life non-executive director is also expected to become a board member.
Aviva chief executive Mark Wilson says: “This acquisition is financially and strategically compelling. 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.
“Consistent with our investment thesis of cash flow plus growth, this transaction will increase our cash flows and reduce our leverage and support continued growth in our dividend. It secures our leadership position in our home market and gives greater flexibility to drive growth in other parts of the Aviva group.
“This is good for shareholders and customers alike who will benefit from being part of a stronger, more diversified and resilient business with a wide range of products.”
Briggs adds: “The enlarged group brings together complementary strengths and a commitment to delivering the very best propositions, service and expertise for customers. I’m delighted to be joining the board of Aviva as part of the leadership team, committed to driving forward the group’s investment thesis of cash flow and growth.
“Together we will have scale leadership positions across our chosen growth markets, ensuring that the new group is well placed to take advantage of the opportunities presented by the rapidly evolving UK life insurance market.”