Shares in Friends Life were up 5.3% to 366p following the news, while Aviva’s stock fell 4.7% to 513p by mid-morning.
The proposed deal would see Aviva take over Friends Life for a total price of £5.6bn, amounting to 0.74 Aviva shares for each Friends Life share.
Aviva said the move would boost profits and assets under management through the addition of Friends Life’s UK assets under administration, which are mainly outsourced at present.
However, the market was not as optimistic about the advantages of the deal for Aviva, with analysts suggesting the move may be risky for the firm.
Shore Capital labelled the stock a ‘sell’, calling the merger “nothing more than a rights issue in disguise”, while The Share Centre downgraded the stock to ‘hold’.
Sheridan Admans, investment research manager at The Share Centre, said: “Due to the merger activity, we are downgrading Aviva to a ‘hold’ recommendation while it goes through firming up the terms of its deal with Friends Life.
“We continue to have faith in Aviva’s recovery outlook, and any share price weakness may prove a good entry point. We also recommend Friends Life as a ‘hold’ for investors during this process.”
