Phoenix Group Holdings PLC (LSE:PHNX) is to buy Sun Life UK for £248mln in cash with the UK's largest long-term savings and retirement business saying the deal should help boost its dividend.
Phoenix said the acquisition of Sun Life of Canada UK, a closed book UK life insurance company, will deliver £470mln of incremental long-term cash generation.
And the group is targeting around £125mln of cost and capital integration synergies, net of costs, adding the "attractive" pricing was equivalent to a "price to shareholder own funds ratio of 83%1".
Te value and cash flow generated from the deal will support a sustainable 2.5% inorganic rise in the company’s dividend, taking effect from the final 2022 payment subject to completion, a statement said.
The acquisition is the first to be financed solely from existing cash resources, reflecting the surplus cash and capital available for reinvestment into growth.
Andy Briggs, Phoenix chief executive, said: "The acquisition of Sun Life UK is highly attractive for Phoenix Group and demonstrates the significant value that smaller cash-funded M&A transactions can deliver for our shareholders.
“I am pleased that we will also be able to offer Sun Life UK's customers access to our broad range of Standard Life products in our open division."
The statement added the board continues to see M&A as a strategic priority going forward and a core part of the group's growth strategy.
Shares gained 1.7% to 663.8p following the news.