'Cash out' of Friends Life despite potential Aviva takeover, says Charles Stanley
Charles Stanley has lowered its rating for Friends Life Group (FLG) from 'hold' to 'reduce', saying that the potential £5.6bn takeover by Aviva has created an "attractive opportunity to cash out".
Aviva
458.50p
16:40 25/04/24
Friends Life Group Limited
429.40p
15:24 10/04/15
FTSE 100
8,078.86
17:14 25/04/24
FTSE 350
4,434.34
17:09 25/04/24
FTSE All-Share
4,387.94
16:49 25/04/24
Life Insurance
5,638.37
17:09 25/04/24
The companies announced on Friday that they had reached an agreement on a possible all-share combination, through FLG shareholders would receive 0.74 Aviva shares for each FLG share they own.
The offer, based on Aviva's 539p share price, represents an indicative value of 399p per FLG share, a 15% premium to the latter's closing price that day.
The news saw FLG's share price jump on Monday, but Aviva's stock dropped firmly into the red.
"We believe this potential deal would entail the marriage of two strategically challenged businesses, although the proposed terms appear to offer a very attractive exit for FLG shareholders (assuming no collapse in Aviva’s share price)," said Charles Stanley analyst Minal Shah.
She pointed out that there is no certainty that the deal will go through with Aviva yet to complete due diligence.
Meanwhile, given that the offer price is based on Aviva's own share price, any further selling pressure on Aviva's stock "could render the (all-stock) deal unviable".
She said: "We feel it may be prudent to crystallise gains to take advantage of the recent speculative rally and so lower our recommendation to 'reduce'."
FLG shares were up 0.3% on Tuesday morning, while Aviva rose 0.1%.