Shares in Friends Life surged after plans for a mega-merger with York-based Aviva valuing the former at more than £5.5 billion were disclosed.

It was the first chance for investors to give their verdict on plans by Aviva to swallow up the firm after details were disclosed on Friday - with Friends saying it was ready to recommend it to shareholders.

The stock climbed 5% following the announcement, which would place a 15% premium on the smaller company's share value at the close of last week. Aviva shares fell 5%.

Analysts at Bernstein said: "We think this is a good deal for shareholders of both Friends Life and Aviva but, on the face of it, a better deal for Friends."

The merger would create a leading insurance, savings and asset management firm with 16 million UK customers - but there has been speculation that the tie-up will mean 2,000 jobs being axed.

Aviva, which employs around 28,000 staff worldwide including 12,000 in the UK, has until 5pm on the December 19 to make a firm offer for Friends Life.

Friends Life employs 3,500 staff largely in offices in London, Manchester, Bristol and Salisbury. Aviva employs its UK staff in York, Norwich, Sheffield and Glasgow.

Under the terms of the proposed all-share offer, Friends Life shareholders would own about 26% of the enlarged group.

Shore Capital analyst Eamonn Flanagan said the deal would draw Aviva, which operates in 15 countries, closer to the UK pensions market which has been thrown into uncertainty following Budget changes to pensions annuity rules.

He said the deal looked like "a rights issue [a cash call on investors] in disguise", with Aviva buying access to the £2 billion a year Friends Life generates from its UK pensions business - with existing Aviva investors seeing their shareholding diluted.

Experts at Nomura said the deal could result in cost savings of £188 million at the end of next year and £255 million by the end of 2016.

Friends Life was created in 2011 following the amalgamation of Friends Provident, the majority of Axa UK Life and Bupa Health Assurance.

The businesses were rebranded to form Friends Life Group, providing pensions, investments and insurance and retirement income products.

The group can trace its roots back to the 1800s as the Sun Life Assurance Society formed in 1810 and Friends Provident, which was formed in Yorkshire in 1832.