James Moore: A not-so-fine romance for Aviva shareholders

Outlook: There’s still a way to go, but the odds are in favour of the deal going through

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Elsewhere in financial services something that would be all but unthinkable in banking is brewing: a mega-deal. It involves insurers Aviva and Friends Life.

The City was hardly jumping for joy at the prospect yesterday, marking Aviva’s shares down by 5 per cent and taking a chunky bite out of the value of the all-share merger proposal in the process.

Meanwhile Friends became a hot stock, as traders bought in in the hope that Aviva may be forced to sweeten the terms, or even prompt a counterbidder to enter the fray.

That’s not likely to happen. Overseas operators are wary of a UK market that is undergoing a great deal of change right now, and it’s hard to imagine one of Aviva’s domestic competitors getting involved. The regulators would have kittens for starters.

There’s still a way to go, but the odds are in favour of the deal going through, on broadly similar terms to the ones announced on Friday night. It helps that Clive Cowdery, who put Friends together from a series of mergers, is supportive. And you can see why. Given the upheavals in the market, it helps to be big. Plus the premium is nice (if it’s still a premium when everything is done).

The attractions to Aviva appear equally clear. Friends has less debt than Aviva, and will therefore strengthen the latter’s balance sheet. Shore Capital’s Eamonn Flanagan might have had a twinkle in his eye when he calls it a rights issue in disguise, but he has a point.

The deal will nonetheless make Aviva the unquestioned big dog of UK life insurance, and there will no doubt be some gaudy numbers put out about cost savings to bring the doubters to the table.

The trouble is that this sector has a rotten record when it comes to delivering M&A benefits to shareholders.

One of the problems that has dogged Aviva is that it is the creation of a string of mergers that previous managers never quite managed to get to grips with, until Mark Wilson came along and made a credible fist of sorting out the mess.

It’s hard to justify any modern chief executive’s salary, but Mr Wilson has proved himself more worthy of what he makes than most. His star has been in the ascendant, but getting pally with Friends puts his stellar reputation at risk.