Aviva shares fall as City casts doubt on Friends deal

Aviva shares fell 4.5% while Friends edged higher- but still well below the bid value

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The Independent Online

Investors ditched Aviva shares today as analysts began to question its planned £5.6bn merger with rival insurer Friends Life.

Aviva shares fell more than 5 per cent while Friends was up by the same percentage. One analyst called the deal “a rights issue in disguise” while another declared: “Aviva knows better than most these mergers rarely add value.”

The two companies announced the surprise merger on Friday night, revealing they were in talks over an all-share deal that would change the landscape of the pensions industry and lead to more industry consolidation.

It could also mean huge job cuts across an enlarged group that would employ just over 15,000 people across the UK.

A leak forced Aviva and Friends to rush out a statement earlier than planned, meaning investors had not been fully briefed about the deal.

However, one major shareholder in both told the Evening Standard today: “I think this is a deal that will grow on investors. At first glance, it could boost cash flow, underpin dividend growth and allow for significant synergies.”  

Aviva boss Mark Wilson and his executive team will meet major insitutional investors from today.

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News of the talks has split the analyst community with experts at Bernstein claiming the deal could produce cost and revenue synergies of  £1.7 billion, more than offsetting the offer premium of about £700 million.

They described it as “a good deal for shareholders of both Friends and Aviva, but, on the face of it, a better deal for Friends”. Eamonn Flanagan at Shore Capital was less convinced describing Friends as “an alphabet soup of companies”.

Aviva chief executive Mark Wilson and his team will meet major institutional investors this week. Doubts over the deal hit Aviva’s shares, down 29p to 510p, while Friends jumped 20.5p to 368.2p, still some way below the 399p a share Aviva is offering. Aviva must make a formal offer for Friends by 5pm on 19 December, or walk away.