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MM leader: Aviva/Friends merger would be no mean feat

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As the news broke late last week that Aviva was in talks to buy Friends Life, the joint corporate statements that followed shone a light on just how advanced the deal was.

The announcements, timed to perfection after the markets had closed, talked of “reaching agreement on the key financial terms of a possible all share combination” of the two insurers.  

Perhaps unusually for a “response to market rumours” statement, Aviva and Friends went into a fair bit of detail about how the various pension, asset management and protection businesses would integrate, and the benefits this would offer.

Given that negotiations are already at a stage where Friends is prepared to back the offer and recommend it to shareholders, the creation of a super insurer with 16 million customers suddenly doesn’t seem that far off.

Aviva and Friends Life are no strangers to mergers and takeovers, bringing with them their own complicated family tree of life offices through the ages. Unfortunately, neither are advisers, and many are already forecasting jobs to be axed as “substantial synergies”, as Aviva and Friends put it, are brought to bear. One analyst is predicting staff cost-cutting could run to £80m, and advisers are braced for the inevitable hit that will have to service levels.

While from the outside both life offices occupy the same market space, advisers know there is much to differentiate between the two when it comes to their pension, investment and protection propositions. When it comes to deciding between cost-cutting versus quality, a cynic would say there are no prizes for guessing which will win out.

The boards of Aviva and Friends may feel that in what has been a tumultuous period for insurers, by coming together they will be stronger. Besides costs, there are advantages from a solvency perspective, one tax bill instead of two, and all in the hope of gaining an ever greater slice of the UK financial services market.

There is also talk of securing Friends’ assets under management under the Aviva Investors banner, though what will happen to existing outsourced mandates remains unclear.

But as the two companies will no doubt testify, bringing together such sprawling businesses is no mean feat. With the FCA’s review into closed book policies rumbling on in the background, there may still be trouble ahead for two brands that have decided to house any potential legacy issues all under one roof.

Natalie Holt is editor of Money Marketing – follow her on Twitter here

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  1. Service levels are really bad with both of these at present and will only go further downhill on a merger.
    I despair sometimes.

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