Investors react to the insurer’s preliminary agreement to buy the smaller rival insurer for £5.6bn


Shares in Aviva suffered their biggest one-day fall in 18 months after yesterday’s announcement that the insurer plans to buy Friends Life for £5.6bn.

Anaylsts yesterday said they were shocked by the move and shares in Aviva closed down 5.4% at 510p.

Aviva said yesterday it was planning to offer 0.74 of its shares in for every Friends Life share, but has not yet made a firm offer.  

Based on Aviva’s closing price on 21 November, it would pay 398.9p a share for Friends Life, valuing the company at £5.6bn.

Aviva said the offer represents a premium of 15% on Friends Life’s closing price on 21 November.

But a near 6% rise in Friends’ share price yesterday to 368.2p reduced the premium that Aviva is proposing.

If the deal is successful, Friends Life shareholders will own 26% of the combined group.

Aviva said that the deal would allow it to boost its cash flows and “accelerate the transformation of Aviva’s balance sheet” by reducing debt and strengthening capital and liquidity.

Aviva has until 5pm on 19 December to make a firm offer for Friends Life or withdraw from the deal.