AVIVA and Friends Life are set to begin talks with staff over job cuts after targeting £225 million in cost savings through their £5.6 billion merger.
The FTSE 100 insurance giants have agreed an all-share tie-up that will create a company worth more than £20 billion with 16 million customers, if the deal is backed by shareholders.
Aviva boss Mark Wilson said the cost savings would be made by 2017 — after £350 million of one-off costs — and that an enlarged group would generate £600 million in extra cash that would be used to pay higher dividends.
Analysts have suggested that up to 2000 job cuts could be made because Aviva employs 12,000 workers in the UK and Friends Life a further 3500.
“It’s important to be frank that when combining these organisations, there may be some duplication of roles and there may be some headcount reductions,” Wilson said.
“The first thing we need to do though is consult with our people and look at the options to minimise the job losses. It is inevitable when you put two organisations together, there will — there may — be some reduction of headcount.”
Friends Life was created by entrepreneur Clive Cowdery, who merged Friends Provident with parts of Axa and Bupa. He welcomed the deal, which could net him about £160 million.
Talks are understood to have been ongoing between the two parties since March when Chancellor George Osborne unveiled a major shake-up to the pensions industry in the Budget. From next year, savers will no longer have to buy an annuity at retirement and will be given more freedom with their money.
This has hit annuity sales at both businesses, which believe they will be better placed to withstand the reforms as an enlarged company. Aviva said the combined business would boost assets in fund management arm, Aviva Investors, by about £70 billion to £309 billion.
One major investor in both Aviva and Friends Life told The Evening Standard that he welcomed today’s news: “This is an attractively priced, value-enhancing deal which will look more attractive over time.”
However, Eamonn Flanagan, an analyst at Shore Capital, 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?”
Aviva shares rose 1.1p to 500.5p. Friends climbed 9.2p to 375.4p.Reuse content