A week after Aviva's (AV.) surprise proposal to buy Friends Life (FLG) - news that sent the life assurance giant's shares down 5 per cent immediately following the announcement - the group has now made a formal offer. The deal has been recommended by Friends, although the terms haven't changed: Aviva is still offering 0.74 of its shares for each Friends share, valuing them at about 370p each.
Some extra details, however, have emerged. Significantly, the all-share offer will be supplemented by a fat 24.1p dividend payout - that's roughly a 10p uplift on analysts' consensus estimates for Friend's pre-deal final dividend. Aviva has also fleshed out likely synergies. It's expecting around £225m of annual savings by the end of 2017 - "bang in-line with our expected £200m-£250m", note analysts at Credit Suisse - although one-off integration costs of £350m are anticipated.
Given the highly cash generative nature of the Friends' business the move should also bolster Aviva's dividend-paying capability. Indeed, Aviva already plans to boost its final dividend by 30 per cent to 12.25p. But while the deal will strengthen Aviva's UK life and savings business, the mature and highly regulated nature of the UK life market has left some sector analysts wondering about organic growth prospects once synergy benefits have worked through.
