Shares in insurer Aviva fell back yesterday as investors reacted to its proposed mega merger with Friends Life Group.
Details were made public on Friday evening, but it was not until the market opened yesterday that investors had a chance to register their view on the proposed multi-billion-pound tie-up.
The reaction proved to be mixed, with stock in Aviva which employs more than 1,000 people at its call centre operations at Pitheavlis in Perth falling 5.4%, while shares in Guernsey-based FLG pushed ahead 5.9%.
FLG’s board has said it is ready to recommend Aviva’s approach, at a premium of 15% above its closing price on Friday, to shareholders.
Analysts at Bernstein said: “We think this is a good deal for shareholders of both Friends Life and Aviva but, on the face of it, a better deal for Friends.”
The merger would create a leading insurance, savings and asset management firm with 16 million UK customers.
However, there has been speculation that the tie-up could mean 2,000 jobs being axed.
Aviva which employs around 28,000 staff worldwide, including 12,000 in the UK has until December 19 to make a firm offer for its takeover target.
FLG has 3,500 staff in the UK, largely in offices in London, Manchester, Bristol and Salisbury.
Under the terms of the proposed all-share offer, FLG shareholders would own about 26% of the enlarged group.
Shore Capital analyst Eamonn Flanagan said the deal would draw Aviva closer to the UK pensions market, which has been thrown into uncertainty following Budget changes to pensions annuity rules.
Experts at Nomura said the deal could result in cost savings of £188 million at the end of next year and £255m by the end of 2016.
Friends Life was created in 2011 following the amalgamation of Friends Provident, the majority of Axa UK Life and Bupa Health Assurance.
The businesses were rebranded to form Friends Life Group, providing pensions, investments and insurance and retirement income products to a customer base of more than five million.
Aviva has been resurgent since chief executive Mark Wilson took over the business and instituted a turnaround strategy that has involved hundreds of jobs being cut and the disposal of several non-core businesses.
The group, which has 31 million customers, recently reported a 4% rise in half-year operating profits to £1.05 billion and said the FLG tie-up would further transform its balance sheet.