Friends Share Discussion Threads

[mike740] 23/11/2014 21:27

Thanks for the information lads, so its not really worth selling at the open tomorrow instead wait till the deal as been voted on so at to get the divi on top of the offer price.........well assuming it goes through.

[cardiffjohn36] 23/11/2014 20:17

From wsj- re share buybackThe best part of Friends Life is its closed books. These generated £431 million of cash last year, while Aviva's much bigger U.K. business generated less than £600 million.Friends also carries little debt so Aviva expects the leverage of the combined group would fall to a level that would lift its credit rating to double-A, its target.To get all this, Aviva is offering 0.74 of its own shares for each Friends share-equivalent to 389.9 pence per share at Friday's close. It will pay out more than £400 million in Friends's final dividend and bonuses to the Resolution Capital insurance group that invested in and created Friends. But Friends also has £320 million put aside for a share buyback that can cover some of this.So, the total value of the deal is £5.6 billion, a premium of 30% to Friends's average share price over the past three months.

[a0148009] 23/11/2014 19:36

Contrarian - thanks for the post - assume you are a holder of FLG as well.
There will be opportunities to do some nifty trading over the next few weeks especially tomorrow while the market is trying to find a level for Aviva.

It is unlikely Aviva will pay more than the embedded value of FLG which according
to FT is where the offer is pitched.

AO

[cwa1] 23/11/2014 18:38

Remember also that this is an all share offer, so the price is likely to fluctuate within the parameters of the Aviva share price. The suggestion is that Aviva shares are likely to come under modest downward pressure on Monday at least until more details of the benefits and downsides of the deal become more apparent. My guess, FWIW, is round about 5-10% % less(to allow for the possibility of the offer tripping up somewhere) than the Monday morning equivalent of the offer value from Aviva relative to their opening share price and it will fluctuate around from there.

[contrarian2investor] 23/11/2014 18:32

All the best for next week everyone. Upate from the FT.

Aviva poised to make new Friends

When Mark Wilson was hired to run Aviva after a shareholder revolt over executive pay and poor performance forced out his predecessor, the insurance group was looking vulnerable to a low-ball takeover bid.
Less than two years later, it is Aviva that is the aggressor. Mr Wilson is planning to lead a long-awaited consolidation of the UK life assurance and pensions industry with an audacious £5.6bn takeover of rival Friends Life.


The deal, the largest in the sector in almost 15 years, would create a combined business with a market value of more than £21bn (at Friday’s closing prices), 16m UK customers and £340bn of assets under management.
Investors are only beginning to digest Aviva’s plans for the all-share acquisition, which the two companies were forced to confirm late on Friday after the news leaked.
But some in the City are already questioning the logic – even though the boards of the two companies have agreed on the key terms.
“The problem is, it’s UK life,” says Barrie Cornes, an analyst at Panmure Gordon. “The market is very mature.” He adds that the price Aviva is prepared to pay is “more than full”.
At 398.9p a share, it represents a 28 per cent premium to Friends’ average price over the past three months and is about the same as the takeover target’s embedded value, a way of valuing life assurance companies’ future cash flows.
Although the London Stock Exchange had closed when the deal became public, a proxy for Aviva’s share price – its New York-listed American depositary receipts – fell as much as 2.7 per cent during Friday evening.
Life offices are notoriously awkward to integrate given their often-incompatible IT systems and variety of legacy policies.
Indeed, the woes at Aviva that prompted the insurer’s former chief executive Andrew Moss to stand aside had their origin in past tie-ups, such as those between the old General Accident, Commercial Union and Norwich Union businesses.
Still, Mr Wilson has built up goodwill among Aviva’s leading institutional shareholders for his efforts in curbing administrative costs.
“We’re prepared to give him the benefit of the doubt,” says a fund manager at one of Aviva’s largest 20 shareholders. He says the deal makes “a great deal of sense”.
An overhaul of the UK pensions industry caused by government reforms give the combination some obvious merits.
Changes being introduced by George Osborne have led to a sharp drop in sales of annuities, among life insurers’ most lucrative products.
The moves give consumers more flexibility in how they access their savings. Yet Friends Life faces a particular difficulty coping with the new environment as it lacks its own chunky in-house asset management operation.
“For Friends, this deal is a recognition of how they’ve been weakened by changes to the annuity market,” the fund manager says.
The deal would allow Aviva Investors, led by Euan Munro, to take on Friends’ funds. It would also give Aviva bigger scale in handling corporate pension mandates, a corner of the industry that is growing given separate reforms that require employers to enrol workers automatically.
However, insiders at Aviva say that the main rationale is financial, not strategic.
They say the tie-up with Friends would improve cash generation and reduce leverage, which Mr Wilson has made a priority.
Friends Life, formerly known as Resolution, is expected to generate £370m of cash this year, largely from a multibillion pound pool of closed life assurance funds acquired under founder Clive Cowdery.
While the Friends deal itself might provide only limited growth opportunities outside the corporate pensions business, backers believe it will give Aviva more financial firepower to pursue growth elsewhere.

It should also give Aviva greater scope to boost the dividend, which Mr Wilson slashed by 44 per cent just weeks after he took the job.
However, the success of the deal will partly depend on the efficiency savings Aviva can generate. It has yet to quantify them, other than that they will be “substantial”.
Job cuts are likely at the combined group, especially at Friends’ City of London head office. The takeover target employs 3,500 people.
Aviva has yet to complete its due diligence on Friends, but unless it uncovers an unwelcome surprise it is likely to make a formal offer in about two weeks.
The prospect of investor reservations about the deal turning into disquiet is minimised by a significant degree of cross-holdings among institutions in the two companies.
Aviva’s largest shareholder, BlackRock, is the third-biggest investor in Friends Life. Aviva’s fourth and fifth largest, Legal & General and Franklin Templeton, are also among the takeover target’s 20 biggest equity holders.
If shareholders support Mr Wilson’s transaction formally at a special meeting early next year, then the contrast with his predecessor will be complete.

[aleman] 23/11/2014 17:08

There is not usually any need to suspend a share if the market is not going to be "disorderly". Given the modest premium, a disorderly market is unlikely.

There is no offer as yet so no date has been set for dividend qualification but it is likely that you will qualify for a final dividend if you hold on the day the deal is voted through.

[al101uk] 23/11/2014 16:59

Mark up tomorrow, never heard of a suspension while in talks over an offer. Expect we may finish over £4 due to 15p divi.

[mike740] 23/11/2014 16:20

What happens tomorrow then will FLG be suspended (prior to share holders vote) or will MMs mark share price up to offer price?.

What day will be used for those who qualify for the dividend.

Sorry to ask the obvious but I think in 25 years Ive only had one other takeover stock.

[a0148009] 22/11/2014 18:52

As of Friday's close I reckon the Possible Offer is worth 398.9 plus implied final cash divided for financial year 2014 of 14.09p per share - Total 412.99 see extract from indicated Offer below.

Also according to the Telegraph the Value shares held by Resolution shareholders, former directors, in addition to the Possible Offer to FLG are worth £200m which can be taken in shares or cash by those individuals.
See extract from 2013 Annual Report



Extract from Possible Offer

"In addition, the Possible Offer will be structured so that Friends Life shareholders would receive (whether by way of dividend or pursuant to the Possible Offer) an amount in cash equal to any Friends Life final dividend payment for the 2014 financial year (but would not be entitled to any additional amount in respect of any final Aviva dividend payment for the 2014 financial year)."

Extract from 2013 Annual Report

"How the Value Share works
1
As and when capital is required by Resolution Holdco No. 1 LP,
eg returns in order to make acquisitions, the Company as General
Partner contributes 99.99% of the required capital (usually by
raising funds from shareholders) and RCAP as Limited Partner
would contribute the other 0.01% of the required capital (which it
would obtain from the owners of RCAP).
As and when returns are generated at Resolution Holdco No.1 LP
these returns may be distributed to its partners. Returns distributed
from Resolution Holdco No. 1 LP are distributed according to the
following rules:
Ź
Firstly returns are distributed to the Company until it has received
back all of the gross capital it invested plus an agreed annual
return (currently 4% p.a.).
Ź
Secondly returns are distributed to RCAP until it has received
back all of the gross capital it originally invested.
Ź
All returns distributed from Resolution Holdco No. 1 LP after the
satisfaction of these two thresholds will be distributed 90% to
the Company and 10% to RCAP.
RCAP’s 10% economic interest in such distributions is what we
describe as the “Value Share”.
The gross capital contributed to Resolution Holdco No. 1 LP by the
Company to date is £4,056 million. As at 31 December 2013, the
Company had received aggregate distributions of returns from the
partnership of £1,066 million and the aggregate “agreed return”
to 31 December 2013 was £553 million. Therefore the cumulative
returns which still needed to be distributed to the Company from
Resolution Holdco No. 1 LP before RCAP would become entitled to
share in future distributions was £
3,543 million at 31 December 2013.
If the returns distributed from Resolution Holdco No. 1 LP remain at
the current level of £350 million per annum; and assuming that no
additional capital is deployed in Resolution Holdco No. 1 LP; that the
agreed return figure does not change from 4.0% p.a., and that there
are no one-off special returns distributions from Resolution Holdco
No. 1 LP; RCAP’s entitlement to 10% of future returns distributed
from Resolution Holdco No. 1 LP would commence in 2026.
It should be noted that the use of any returns distributed to the
Company from Resolution Holdco No. 1 LP has no impact on
the date on which RCAP becomes entitled to share in future
distributions of returns from Resolution Holdco No. 1 LP. That is,
it is irrelevant for this purpose whether the returns received by
the Company are retained in the Company itself, used to pay an
ordinary or special dividend to the Company shareholders, or are
used to fund a share buyback.
If the Company were to undertake further acquisitions and
additional capital needed to be injected into Resolution Holdco No.
1 LP in order to fund these, RCAP would be required to contribute
0.01% of any such capital required by the partnership. Such a
capital raising would increase the amount of deployed equity capital
at work in Resolution Holdco No. 1 LP from which RCAP would
eventually be entitled to receive 10% of distributed profits.
Such further acquisitions made in Resolution Holdco No. 1 LP might,
or might not, extend the time period until RCAP started to receive
such distributions. The impact on timing would depend on whether
the FLG business was proportionately more or less cash generative
relative to total capital deployed after the acquisition compared to
the position before the acquisition.
1. The information on the Value Share set out in this section is a summary of the arrangements in place as between the Company
and RCAP. For further details please refer to
the Prospectus issued in respect of the Company’s proposed acquisition of Friends Provident Group.
Resolution Operations LLP
(“ROL”)
ROL is a UK registered limited liability partnership and is
a member of The Resolution Group the original sponsor
and founder of the Company, which is not controlled by the
Company or linked to the Company in any way other than
through the named individuals below and the Value Share as
explained above.
The original partners of ROL included Board members Clive
Cowdery and John Tiner, as well as Jim Newman, a member of
the Group Executive Committee. Clive’s and John’s interests in
the Value Share are explained on page 115.
In the event of a change of control of the Company, the LPA
requires the Company to purchase RCAP’s interests in Resolution
Holdco No. 1 LP for cash unless RCAP agrees to accept the
Company ordinary shares instead. The purchase price for RCAP’s
interest would be 10% of the added value deemed to have been
generated as at the date of the change of control based on the
total consideration paid for the Company less any net assets of the
Company itself (ie net assets held outside of the partnership).
If a change of control of the Company had taken place at
31 December 2013, at the Company share price of £3.54 on that
date, the added value would have been £1,333 million, and the
Company would have been required to acquire RCAP’s interest in
Resolution Holdco No. 1 LP for approximately £133 million in cash.
Operation of the Value Share
Returned capital
Deployed equity
capital
+ 4%
Value share
10%
J
RCAP
Less
74
Resolution Limited
Annual report and accounts 2013

Extract from the Possible Offer

"Based on Aviva's closing share price on 21 November 2014, the Possible Offer represents an indicative value of approximately 398.9 pence per Friends Life share (not including the value of the Friends Life final dividend for 2014 and the Value Share) representing an indicative premium of 15 per cent. to Friends Life's closing share price on 21 November 2014 and an indicative premium of 28 per cent. to Friends Life's three month average share price of 310.7 pence. Under the terms of the Possible Offer, Friends Life shareholders would own approximately 26 per cent. of the enlarged group."

I think this is right but welcome any comments.

edit

Question will they continue with the share buyback?

AO

[philo124] 22/11/2014 16:40

Standard Life Mkt cap 10Bn.

[lab305] 22/11/2014 03:43

Aleman. I think you are right. We would get less income after a takeover the premium offered is not great. If another company was interested at around £4.25 or more then I would be much happier.

[philo124] 21/11/2014 20:18

LG; ISA also but could have knocked out another aim dog had it been in my trading a/c.

[lord gnome] 21/11/2014 20:03

Sorry to read that Aleman. My FLG are safely locked away in an ISA, so for once I have no CGT worries.

[topvest] 21/11/2014 19:23

Well I suppose it's good news. Not cash, so depends on the Aviva share price. £4 is OK but not necessarily a knock-out deal.

[a0148009] 21/11/2014 18:54

Although unexpected the deal makes sense, market Cap FLG £5b, market Cap Aviva £17b and looks to be a good fit - clearly the directors of both companies seem to get along and have identified and agreed the main business principles. £4 looks about right but who knows.

Obviously there was more to the recent rise than just the buyback and yield but
did not get a whiff of this and they must have been talking for some time.

If it goes through at £4 here is one very satisfied investor and
congratulations to all holders.

AO

[philo124] 21/11/2014 18:54

mike740, well done! Your "system" obviously works.

[aleman] 21/11/2014 18:48

HHhhmmm... the premium offered only just covers my CGT if I sell. If I stick with it, my dividend income falls by 1/3rd on Aviva's forecast dividend increase from 15p to 19p. I was quite excited at first but now I'm underwhelmed. I'm not certain I'm going to vote in favour.

[mike740] 21/11/2014 18:47

LOL......i only bought it this morning 9.15am after my system churned it out last night.

Derd lucky.

[philo124] 21/11/2014 18:17

LG- what a good idea, Friday night as well. I am going to open a bottle of Crozes-Hermitage I'd put by for xmas. Bought from Aldi. lol.

[cardiffjohn36] 21/11/2014 18:15

So 399 plus 15p. Final divi - Can somebody explain this pleasePage 74 of accounts as per rnshttp://www.friendslifegroup.com/~/media/Files/F/FriendsLife/documents/r-and-a/ar-accounts-2013.pdf

[scottishfield] 21/11/2014 18:09

indeed, always expect the unexpected .

[lord gnome] 21/11/2014 18:09

Wow! What a nice end to the week. Another bottle of your best wine please garcon!

[contrarian2investor] 21/11/2014 18:05

FLG could be heading higher next week. I would be very happy with an additional 15% premium on top of my previous returns for this "cash holding". c2i




Aviva is in talks to buy rival FTSE 100 life insurer Friends Life in a £5.6bn acquisition that would transform the UK pensions industry, according to people with knowledge of the discussion.
It would be the biggest deal in the UK insurance sector since the merger of CGU and Norwich Union almost 15 years ago, which created Aviva.

An acquisition of Friends would be a bold move by Mark Wilson, Aviva’s chief executive, who has been in the job for less than two years after his predecessor left following a shareholder revolt.
The people told the Financial Times that the talks were well developed but cautioned they could still fall apart. Aviva is eyeing a bid at about 400p a share, a 15 per cent premium to its Friday closing share price of 347.7p.
A tie-up between the two blue chip insurers could help them better cope with an overhaul of the pensions system under George Osborne.
The chancellor’s reforms have led to a sharp drop in sales of annuities, which have been among the sector’s most lucrative products.

Friends Life, originally founded by the entrepreneur Clive Cowdery as a buyer of UK life assurance funds, has come under particular pressure in recent months.
It reported a pre-tax loss of £31m in the first six months of the year, pushed lower by amortisation and impairment charges.
Friends Life is not reliant on annuities but had made selling more of them a substantial part of its strategy. A pensions charge cap and an regulatory probe of historic life policies have also dented investor sentiment.
However, the shares have been supported in recent months by £320m share buy-back, funded by its Luxembourg-based tax planning arm Lombard.
One in seven savers in defined contribution pension schemes are Friends Life customers.

[cardiffjohn36] 21/11/2014 17:46

Well after the drop from 380 we can't believe our luck - it's a funny old world!!!!