Confirming market speculation on Friday, the two insurers released a joint statement revealing talks were taking place and that a possible offer is being discussed which values Friends Life shares at 389.9 pence each.
The offer represents an indicative premium of 15% to Friends Life’s closing share price on 21 November 2014 and an indicative premium of 28% to Friends Life’s three month average share price of 310.7 pence.
Under the terms of the potential offer, Friends Life shareholders would own approximately 26% of the enlarged group.
In the statement, Aviva said the acquisition would create the leading insurance and savings business in the UK with 16 million customers “who stand to benefit from being part of a stronger and more diversified group with a wider product range”.
It added that Friends Life’s 5 million customers “will benefit from Aviva’s product offer in general insurance, health, and asset management as well as life insurance”.
Aviva now has until 19 December to either announce a firm intention to buy Friends Life or inform the market it does not intend to make an offer.
Earlier this year, Friends Life agreed to sell its Luxembourg-based subsidiary Lombard International Assurance to global investment group Blackstone for an initial consideration of £317m.
The deal reignited speculation that Friends Provident International could also be sold, something which was not denied by FPI executive chairman John Van Der Wielen when he spoke to International Adviser in September.