Aviva agrees to buy Friends Life for $8.8 bn

British multinational insurance company Aviva Plc today agreed to buy rival Friends Life in a £5.6 billion ($8.8 billion) all-share deal.

Both companies had last week announced that they were in talks and have reached an agreement on the key financial terms of a possible all share combination. (See: British insurance company Aviva plans to buy Friends Life for $8.8 bn)

Under the terms of the agreed deal, shareholders of Friends Life will receive 0.74 new Aviva shares, valuing the company at £5.6 billion.

Based on Aviva's closing share price on 21 November 2014, the offer will be valued at around 398.9 pence per Friends Life, representing a premium of 15 per cent to Friends Life's closing share price on 21 November 2014.

Friends Life shareholders will also receive a second interim dividend of 24.1 pence per share.

The merger would create the UK's largest insurance, savings and asset management business by number of customers and a net worth about £20 billion ($31.4 billion)

It would have 16 million life insurance customers and generate £600 million in excess cash flow a year and about £225 million in annual cost savings by the end of 2017.

The combined business would have leadership positions across key product areas and be better positioned to take advantage of the evolving UK life insurance market with greater capacity to invest and innovate.

Friends Life is the fifth-largest life and pensions company ranked by UK market capitalisation and operates from seven countries around the world, including the UK, Germany, Luxembourg, Dubai, Singapore, Hong Kong, and the Isle of Man.

Friends Life was founded as Resolution Limited by entrepreneur Clive Cowdery in 2008 and changed its name to Friends Life Group in May 2014.

The London Stock Exchange-listed company acquired AXA Sun Life Holdings Ltd from AXA SA in early 2010 and Bupa Health Assurance in late 2010