Takeover bid for Friends Life sparks share fall at insurance and pensions giant Aviva

Insurance and pensions giant Aviva saw its shares fall by 29p or nearly 5.4 per cent to 510p yesterday as investors absorbed the news of its £5.3billion takeover bid for Friends Life.

Shares in Friends Life travelled in the opposite direction, gaining 20.5p or almost 6 per cent to 368.2p.

The offer is an all equity bid, for 0.74 of an Aviva share for every one in Friends.

Taking it all in: Insurance and pensions giant Aviva saw its shares fall by 29p or nearly 5.4 per cent to 510p as investors absorbed news of a Friends Life takeover bid

Taking it all in: Insurance and pensions giant Aviva saw its shares fall by 29p or nearly 5.4 per cent to 510p as investors absorbed news of a Friends Life takeover bid

Analyst Mark Cathcart at Jefferies said that he expected the announcement to lead to ‘initial share price weakness’ for Aviva because of the ‘strategic shock’.

Some investors had not expected Aviva chief executive Mark Wilson to expand his company in the UK because of political and regulatory concerns.

Cathcart said the deal is ‘counter-intuitive at first sight’ because it seems to run contrary to the simplifying of the group that is currently under way.

He added, however, that if the deal is successfully carried off, it will lead to ‘undisputed market leadership in UK insurance’ growth through cross-selling and a ‘double-digit increase’ in Aviva’s potential to pay dividends.

Sheridan Admans, investment research manager at The Share Centre, said the takeover could create ‘substantial synergies’ but warned it is ‘not a done deal’.

James Shuck at UBS pointed out that UK life assurance mergers are notoriously challenging and that Aviva is still dealing with past deals of its own, but added that a tie with Friends would transform its balance sheet.