The deal will see Friends Life shareholders receive 0.74 new Aviva shares for each Friends Life share they hold.
The proposal values each Friends Life share at 394p, a 15% premium to its 20 November closing price, the day before the talks became public. It also represents a 27% premium to the insurer’s average closing share price over the three months to 20 November.
Based on the closing price on 1 December, the deal valued each Friends Life share at 370p, an 8% premium to 20 November’s closing price.
Friends Life’s existing issued ordinary share capital is valued at £5.6bn.
Shareholders will receive, in place of Friends Life’s 2014 final dividend, Friends Life’s proposed second interim dividend of 24.1p per share, resulting in a 2014 full-year dividend of 31.15p per share.
The acquisition will result in Friends Life shareholders owning approximately 26% of the share capital of Aviva. It is expected to strengthen both companies’ balance sheets, accelerate dividend growth and bring together 16 million customers.
Aviva will have the opportunity to add up to £70bn of Friends Life’s UK assets under administration, boosting Assets Under Management (AUM) by 29%. It also means the combined firm will be well positioned to target the at-retirement and corporate pensions segments of the market, it said.
If the deal completes, Andy Briggs, the current group chief executive of Friends Life, will become chief executive officer of Aviva UK Life and will join the board of Aviva as an executive director.
John McFarlane, chairman of Aviva, said: “Aviva’s recent success and sound growth and return prospects already present a compelling investment proposition and enable us to advance our strategy through acquisition as well as organic growth.
“The proposed acquisition not only consolidates Aviva’s leading position in the UK, it is expected to enable a much stronger dividend flow and balance sheet position than would otherwise have been possible. It also offers Friends Life shareholders an attractive outcome.
“This move enhances, and is consistent with, our investment proposition of ‘cashflow plus growth’, and I commend it to shareholders.”
Another beneficiary from the deal is likely to be major Friends Life shareholder Clive Cowdery, who is set to walk away with £160m.
Aviva’s shares closed down 1.85% on Monday, at 499.4p. The share price of Friends Life was also subdued, closing down 0.57% at 366.2p.
