Aviva in $8.8 billion deal to buy Friends Life after pensions shake-up

GNN London - British insurer Aviva (AV.L) said on Friday it had agreed terms on a possible deal to buy rival Friends Life (FLG.L) for 5.6 billion pounds ($8.8 billion) as British pension reforms put pressure on insurance companies to find new business.

Pension providers are rushing to reinvent themselves after the government in March unexpectedly removed obligations for people to buy an annuity, or income for life, at retirement, sharply cutting annuity sales.

Aviva's all-share offer of 0.74 shares for every Friends Life share implies a 15 percent premium to the closing price on Friday. The board of Friends has indicated it will recommend the offer, which equates to 399 pence per Friends share, the companies said in a statement.

The deal would strengthen Aviva's balance sheet and reduce its leverage, as well as boosting its assets under management, it said.

Brokerage Panmure Gordon & Co downgraded Aviva following the announcement.

"Whilst there will be some cost synergies and it could accelerate Aviva's dividend paying capability it is also at odds with management's previous comments about Aviva being too UK-centric," Panmure analyst Barrie Cornes wrote in a research note.

The brokerage cut its target price to 505 pence per share from 585p previously and downgraded its recommendation to "Hold" from "Buy".

Mark Wilson, former boss at Asian rival AIA (1299.HK), joined Aviva as chief executive two years ago and has pushed a restructuring agenda across the group, selling off businesses, cutting costs and improving profitability.

Created in 2008 by entrepreneur Clive Cowdery as Resolution, Friends Life was known for buying up closed books of business from other insurers and using its scale to make cost savings in managing them as they gradually expire, or "run off", rather than writing new business itself.

Friends Life has a stronger presence in the growing "bulk annuity" market, in which insurers take on the risk of part or all of a company's pension scheme.

"The transaction would...more than double Aviva’s corporate pension assets under administration and create new opportunities," the statement said.

Friends Life posted a 7 percent drop in operating profit in the first half, while Aviva saw a 4 percent rise.

The two companies combined would have a stock market valuation at Friday's London market close of around 20.5 billion pounds.

Under the terms of the offer, Friends Life shareholders would own around 26 percent of the combined group. They would also receive an amount in cash equal to any Friends Life final dividend for the 2014 financial year.

Friends Life shares are down 2 percent this year, while Aviva has gained 20 percent.

(GNN, Reuters, Aip)(Additional reporting by Kate Holton; editing by Jason Neely)

Related articles

• Insurance companies Aviva and Friends Life set to merge (itv.com)
• Aviva Agrees To Possible $8.8 Billion Deal To Buy Friends Life (businessinsider.com)
• Aviva agrees to possible 5.6 bln stg deal to buy Friends Life (dailymail.co.uk)
• Aviva Agrees £5bn Deal To Buy Friends Life (news.sky.com)

PSDP allocation is likely at Rs1.175 trn

ISLAMABAD: The government allocation for Public Sector Development Programme (PSDP) is likely to be set at Rs1.175 trillion in the upcoming budget.

The Annual Plan Coordination Committee, which will meet under the chairmanship of Ahsan Iqbal, is set to approve the PSDP for the fiscal year 2014-15.

The meeting is expected to approve Rs525 billion for the federal projects and Rs650 billion for the provinces under the PSDP.

Out of the allocation for federal projects, 70 percent will be spent on infrastructure development and 25 percent on social sector development.

The PSDP will be presented for final approval before the Economic Coordination Committee (ECC) which is scheduled to meet under the Prime Minister on May 29.

In-camera meeting: Opposition labels budget strategy as sketchy

ISLAMABAD: In a first glimpse of what looks like a response to the upcoming budget, members belonging to the opposition and allied parties have termed the government’s budget strategy ‘sketchy and wishful thinking’ while criticising the chief economic czar for bypassing parliament in budget-making.

The briefing came just days before the presentation of the budget in parliament on June 3, providing no chance for a meaningful discussion. CREATIVE COMMONS

In his first-ever briefing to a parliamentary panel on the budget strategy for financial year 2014-15, Finance Minister Ishaq Dar on Tuesday presented the strategy paper to a joint sitting of the National Assembly and Senate Standing Committees on Finance and Revenue in an in-camera meeting.

Dar had to face a barrage of questions after members of the committees took an exception to his move to ignore parliament in the budget-making process.

The whole exercise was complete eyewash, as the government did not share tax proposals with representatives of the people, said members after the meeting.

The briefing came just days before the presentation of the budget in parliament on June 3, providing no chance for a meaningful discussion.

“What was presented in an in-camera session is already known to us through newspapers, killing the purpose of the meeting,” said former finance minister Saleem Mandviwalla of the Pakistan Peoples Party (PPP).

Mandviwalla said the tax target of Rs2.810 trillion for next year was very ambitious and the budget strategy paper was a wish list. The briefing was nothing but just numbers, he remarked.

The government has already agreed on the budget deficit target of 4.8% of gross domestic product (Rs1.4 trillion) with the International Monetary Fund and rest of the exercise is just “number crunching”, said Syed Naveed Qamar, who also belongs to the PPP.

The numbers presented to the committees were notional, having no real value, he said, pointing out that the government did not give a briefing on the budget, as the entire presentation revolved around medium-term budget strategy.

According to Qamar, the members of the committees agitated against ignoring them in the budget-making process. “What the government presented to us was a very small step towards taking parliament into confidence.”

They were of the view that the government neither had a plan to curtail inflation nor it knew how to create jobs.

“As a result of the new budget, inflation will increase and there is also a question mark over the government’s strategy to reduce unemployment,” said Senator Talha Mahmood of Jamiat Ulema-e-Islam-Fazl (JUI-F) – an ally of the ruling party.

Describing Rs2.810 trillion tax target as “doubtful”, Mahmood asked when the Federal Board of Revenue (FBR) could not achieve this year’s Rs2.475 trillion target, what magic wand it had to reach the unrealistic target for next year.

He underlined the urgent need of introducing drastic reforms in the FBR as corruption prevailed at the lower level.

Raising $2 billion by floating Eurobonds and maintaining exchange rate stability should not be treated as benchmarks for economic revivals, suggested Rashid Godil of the Muttahida Qaumi Movement (MQM). The briefing was nothing but a speech by a good orator, Ishaq Dar, he remarked.

Silver lining
Dar assured the parliamentarians that, depending on the Supreme Court’s favourable decision, the government would restore their budget for development schemes.

The finance minister gave personal assurance that not only for next year but parliamentarians’ funds for the outgoing fiscal year would also be allocated in the new budget, said Senator Talha Mahmood.

The government expected the court to give a favourable decision on June 2, he said.

Naveed Qamar pointed out that with the suspension of parliamentarians’ schemes, rural development had come to a halt.

(By Shahbaz Rana) Published in GNN & Tribune, May 21st, 2014.