Aviva shares fell as investors responded negatively to its bid for rival FTSE 100 insurer Friends Life.
In early trading, Aviva’s shares dropped 4% to 517p, reducing the value of its all-share offer for Friends Life to about £5.4bn from the £5.6bn figure announced on Friday.
Friends Life shares rose 6.4% on Monday to 370p, valuing the company at about £5.2bn. The gap between the proposed offer and Friends Life’s valuation suggests investors have doubts about whether the takeover will go ahead.
After markets closed on Friday Aviva announced that it had reached a preliminary agreement with Friends Life to offer 0.74 of its shares for each share of Friends Life.
The deal would be the biggest in the UK insurance industry since Aviva was formed from the merger of Norwich Union and CGU in 2000. The proposed takeover is a consequence of the chancellor’s decision to free people from the requirement to use their pension pot to buy an annuity.
Annuity sales are a big part of Friends Life’s business, though the company has said it can capitalise on customers’ greater freedom to shop around for pension products.
Aviva has to convince its own investors that a merger in the UK is a good idea when its rival Prudential is conducting good business in Asia and the US. Investors have long seen Aviva as a lumbering bureaucracy and may not be enthusiastic about the prospect of meshing the two businesses together.
David Cumming, head of equities at Standard Life, said Aviva had spotted the chance to cut costs by snapping up Friends Life following the chancellor’s announcement.
“I think predominately it’s a financial transaction from an Aviva perspective,” he said on BBC Radio 4’s Today programme.
