Aviva, Friends Life Agree On Terms For Possible GBP 5.6 Bln Merger

(RTTNews) - British life and health insurer Aviva plc (AV.L, AV) agreed Friday to the terms for possible all-stock acquisition of smaller rival Friends Life Group Ltd. (FLG.L) to create UK's leading insurance, savings and asset management business with 16 million customers. The two companies confirmed that they have reached an agreement on the key financial terms of a possible all share combination.

However, there can be no certainty that Aviva will proceed to make an offer for Friends Life.

The proposed deal could see Aviva acquire the entire ordinary share capital of Friends Life on the basis of an exchange ratio of 0.74 Aviva ordinary shares for each Friends Life ordinary share. The offer is also expected to include an amount in cash equal to any Friends Life final dividend payment for the 2014 financial year.

The offer is valued at about 399 British pence per share, based on Aviva's closing price of 539 pence on Friday, or a total consideration of about 5.65 billion pounds. The offer also represents a 14.8 percent premium over Friends Life's closing price of 547.70 pence on Friday.

Under the terms of the offer, Friends Life shareholders would own about 26 percent. of the enlarged group upon closure.

The deal will significantly increase cash flow and accelerate growth of Aviva's dividend as well as strengthen its balance sheet and reduce leverage, creating foundation for future growth.

The deal will also materially boost Aviva Investors' total assets under management, increasing importance of fund management to the group.

Additionally, the 5 million customers of Friends Life's will benefit from Aviva's product offer in general insurance, health, and asset management as well as life insurance.

Aviva noted that any offer is subject to satisfactory completion of customary due diligence. Aviva deed that it reserves the right, with the recommendation of the Board of Friends Life, to amend the exchange ratio of Aviva ordinary shares for Friends Life ordinary shares.

The Board of Friends Life has indicated to Aviva that it is willing to recommend the key financial terms of the offer to Friends Life shareholders, subject to reaching agreement on the other terms and conditions of any offer and the completion of mutual due diligence.

Aviva noted that it has now until not later than 5.00 pm (London time) on December 19, 2014 to either announce a firm intention to make an offer for Friends Life in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer. This deadline may be extended with the consent of the Takeover Panel.

AV closed Friday's regular trading session at $16.32, down $0.31 or 1.86% on a volume of 0.73 million shares.

Aviva closed on the LSE at 539.00 pence, up 6.50 pence or 1.22% on a volume of 5.78 million shares, and Friends Life closed at 347.70 pence, up 4.40 pence or 1.28% on a volume of 7.02 million shares.