INSURER Aviva has agreed a £5.6 billion deal to buy rival Friends Life in a move that will trigger jobs losses across the combined group.
However, Aviva chief executive Mark Wilson said it was “way too early” for the firm – which employs about 2,500 people in Scotland – to estimate the scale of any cutbacks after a takeover.
“There may be some duplication in roles and headcount reduction,” Wilson said yesterday as the two groups announced the planned tie-up, which is subject to shareholder approval.
“We will look to minimise job losses and consult with our people first.”
The takeover is expected to generate annual cost savings of £225 million by the end of 2017, prompting speculation up to 2,000 jobs could be axed.
Aviva employs around 28,000 staff worldwide including 12,000 in the UK, while Friends Life employs 3,500.
Dominic Hook, national officer at the Unite union, which represents more than 4,000 members across both firms, said: “We would urge Aviva to resist the temptation of using the takeover as an excuse to slash jobs and erode terms and conditions of staff who have turned the company’s fortunes around in the last couple of years.
“Any moves to do so risks a deterioration in customer service and a loss of important skills and knowledge to the new company. We will be seeking urgent meetings with both Aviva and Friends Life to press for clarity and assurances about the future of the combined workforce in the new company.”
Under the takeover, Friends Life shareholders will receive 0.74 Aviva shares for each Friends Life share they hold. The offer values each Friends Life share at 370p, which represents a premium of 8 per cent to the 20 November share price – the day before it emerged the two groups were in talks.
The proposed deal is the biggest in the industry since the merger of CGU and Norwich Union created the company now known as Aviva in 2000.
Wilson, who will lead the combined group, said: “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.”
Friends Life boss Andy Briggs, who is to become chief executive of Aviva’s UK life division, said his firm “has always been about maximising value for shareholders and delivering strongly for customers”.
He added: “The compelling combination of Friends Life and Aviva provides an excellent opportunity to accelerate our existing strategy and growth, generating value for shareholders faster.”
Friends Life was formed by Clive Cowdery’s Resolution through the consolidation of Friends Provident Group, much of the life and pensions business of Axa UK and the British protection and risk business of Bupa.
Yesterday Cowdery said: “Resolution has now completed a decade of consolidation in the UK life market, strengthening the sector for policyholders and delivering value for shareholders.”
Aviva and Friends Life confirmed details of the merger a week after disclosing they were in advanced talks about creating the UK’s largest insurance, savings and asset management business by number of customers.
The addition of Friends Life will extend Aviva’s customer base from 11 million to 16 million and the deal comes amid sweeping changes to the pensions industry. Providers are seeking to revise their product ranges after Chancellor George Osborne in March announced an end to rules forcing many people to buy an annuity with their pension pot.
Briggs said the two groups worked well together, as Friends Life’s corporate pension business is skewed towards larger firms, while Aviva focused on smaller companies.
The move by Aviva comes after a resurgence in its fortunes under Wilson, who took charge nearly two years ago after Andrew Moss was ousted following a shareholder revolt over his pay and the faltering pace of the business. Wilson has since cut hundreds of jobs and disposed of several businesses as part of a turnaround strategy.
However, Shore Capital analyst Eamonn Flanagan said the Friends Life deal looked like a “rights issue in disguise”, with Aviva buying access to the £2bn a year that Friends Life generates from its UK pensions business.
Reiterating his “sell” rating, Flanagan said: “We remain puzzled why Aviva felt the need to do it now.
“Is it a camouflage for issues within its own internal restructuring and turnaround story?”
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