Economics论文模板 – Mergers and Takeover

The acquisition of Friends Life by Aviva was completed on 13 April 2015 to create an enlarged Aviva Group which has been ranked as the largest British insurance company. The deal was worth 5.6 billion and it saw the CEO of Friends Life Andy Briggs become the new CEO of UK life while the existing CEO Mark Wilson becoming the head of the larger company. Before its acquisition, Friends Life was offering its services in seven countries across the globe and was ranked as the 5th largest insurer in UK. The acquisition of the company by Aviva therefore meant that it brought about significant impacts on the consumers, the companies involved and the wider economy (Hargreaves, 2015).

To the consumers, the acquisition had a positive impact as it meant that the new group formed was more stable and this would increase their security. It also meant that by bringing together the managers from both companies, there would be better management of resources and development of better strategies which would result to better services and products to the consumers. It also has a positive impact on the consumers as it meant that there would be better access to the services needed given that each of the companies had offices in different locations. The acquisition meant that the customers had a wider variety of products to choose from that were being offered by the two companies. The consumers in the market will expect that the larger established group can lower the costs of the services offered with the cost reduction strategy. This will make insurance more accessible for the consumers and cheaper for them (Dakers, 2015).

The acquisition could however bring about negative impacts on the customers. One of the disadvantages is that the existing customers for Friends Life may have to sign new contracts with the new entity with different terms from what they had agreed with Friends Life which will be inconveniencing for them. It would also have a negative impact on the customers from the fact that there was reduced competition in the insurance industry and the new group would be in a better position to control and manipulate the prices in the market. This kind of acquisitions results to market dominance making it difficult for other competitors to join the market which is disadvantageous for the customers. This means that there will be limited choices of insurance companies in the market that the customers can choose from which exposes them to exploitation.  If the cost reduction strategy does not result to a reduction in the price charged by the company for its services, then it will not bring about any benefits for the customers (Salmon, 2015).

The acquisition has various advantages as well as disadvantages for the two companies. Aviva for instance will be able to enjoy an increased market share by taking over the market previously held by Friends Life. This will mean that it will be in a better position to increase the revenues and profitability. In addition, the company will benefit from the acquisition of the offices and other assets which were held by Friends Life hence improving service offering to the customers. The company will experience good market share performance from the increased stability which is good for the shareholders and the management (Scharf, 2001). By merging with Fiends Life, Aviva will have the advantage of taking over the talented staff and members of the management who can be able to improve the operations in the future and grow the company. There will also be an aspect of risk reduction given the fact that the company has a wider resource base and market share making it more stable. The fact that Friends Life was one of the major competitors means that the company will be facing minimal competition after the acquisition and will be in a better position to pursue its goals (Morrison, 2015).

Despite these advantages, there are various challenges that are likely to come about for Aviva. The increased size of the company makes it more challenging for the management to control the operations and ensure that everyone is working towards achievement of the same goal. Motivating the employees also becomes challenging for the management given the increased size of the company and the fact that there are new employees who join from Friends Life Company who are used to a different system and hence will find it difficult to settle in the new company (DePamphilis, 2013). In addition, Aviva Company will experience increased costs of operations given the wider market share and if there is no subsequent increase in the sales and profitability, this could result to losses for the company. The increased market share and dominance means that the company will be exposed to greater regulation by the insurance regulators. This is to ensure that it does not take advantage of it position to exploit the customers. Such regulation means that Aviva may not be able to successfully pursue some of its strategies that are aimed at increasing market share and making it more profitable (BBC News, 2015).

By being taken over by Aviva, Friends Life on the other hand will have the advantage of being managed by more experienced managers who will help to achieve a greater rate of market growth. The shareholders in the company get to gain from the high payment that come about from the acquisition by Aviva. By being taken over, there will be a risk reduction for Friends Life and its shareholders as it means that all the affairs of the company including debts are taken over by Aviva. The management of the company also gets to work for a bigger and established Aviva Group where they could get benefits as salary increments and greater exposure which is good for their career (Pride, 2010).

There are however disadvantages that come about for Friends Life from this kind of acquisition. One of these is the fact that some of the employees in the company end up losing employment. After this acquisition for instance, Aviva ended up announcing that it would be closing some of the offices in Dorking, Exeter and central Manchester over the next 18 months which meant that over 1,500 employees were at the risk of losing their jobs. This is a cost reduction strategy that was being adopted by Aviva group and it would lead to a large number of Friends Life employees losing their jobs despite having worked for the company for a long period of time (McCahery & Renneboog, 2003).

The acquisition of Friends Life by Aviva will have varying impacts on the UK insurance sector and the economy at large. One of the advantages is the fact that there will be increased stability in the insurance sector where the new Group of Aviva will be considered more stable. As such more customers will be willing to acquire insurance to safeguard their investment which is good for economic growth. The acquisition will also bring about better management and growth of the company which increases the revenues and profitability and translates to higher tax payment which is good for economic growth (Moynihan, 2001). Another major advantage of the acquisition is the fact that Aviva Group will continue expanding to other markets where Friends Life was already established which brings about higher foreign income for UK which is good for economic growth. As the company stabilizes in the market and increases market share, there will be need to hire more staff which will increase the levels of employment and income taxes paid for economic growth. The acquisition generally can be helpful in growing the industry given that the new established company does not take advantage of its position to dominate the market and overcharge customers for the services. This kind of growth of the industry is good for the UK economy (Scharf, 2001).

The acquisition could however have negative impact on the UK economy and insurance sector based on the strategies that are taken by the company. If Aviva group takes advantage of its position and stability to dominate the market and lock out competitors, this will have a negative impact on the industry and the economy. It will mean that the company can charge high prices due to the lack of competition and this results to low insurance intake and decline in the levels of investment on the economy. In addition, locking out other competitors from the market lowers the revenue that is collected from the insurance sector which is not good for economic growth. The planned job cuts by Aviva will have a negative impact on the economy as it will result to high unemployment rates and will also mean that there is lower tax collected as income tax which is not good for the economy (Ragan & Thomas, 2010).

Reference

BBC News, 2015. Aviva plans 1,500 job cuts after Friends Life takeover. [Online]
Available at: http://www.bbc.co.uk/news/business-30883907

Dakers, M., 2015. Aviva and Friends Life shareholders support creation of insurance giant. [Online]
Available at: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/insurance/11497848/Aviva-and-Friends-Life-shareholders-support-creation-of-insurance-giant.html

Hargreaves, R., 2015. Will Aviva plc’s Acquisition Of Friends Life Group Ltd Help The Company Return To 850p?. [Online]
Available at: http://www.fool.co.uk/investing/2015/01/22/will-aviva-plcs-acquisition-of-friends-life-group-ltd-help-the-company-return-to-850p/

Morrison, C., 2015. Aviva takeover of rival Friends Life completes. [Online]
Available at: http://www.cityam.com/213623/aviva-takeover-rival-friends-life-completes

Salmon, J., 2015. Insurance giant Aviva shuts three offices as part of Friends Life £5.6bn takeover. [Online]
Available at: http://www.thisismoney.co.uk/money/markets/article-3125455/Insurance-giant-Aviva-shuts-three-offices-Friends-Life-5-6bn-takeover.html

Scharf, C. A., 2001. Acquisitions, mergers, sales, buyouts, and takeovers: A handbook with forms. Englewood Cliffs, N.J: Prentice Hall, Business & Professional Division

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