Sunday 11 December 2016

Aviva says RSA bid wasn't in shareholders' interests

Andrew MacAskill

Published 16/08/2010 | 14:56

Investors may start pushing for the breakup of Aviva because the units may be worth more than the value of the group . Photo: Getty Images
Investors may start pushing for the breakup of Aviva because the units may be worth more than the value of the group . Photo: Getty Images

Insurance giant Aviva said it rejected a £5bn (€6.1bn) bid for its general insurance businesses in Ireland, the UK and Canada because the deal wasn’t in shareholders’ interests.

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Aviva’s management was unanimous in rejecting the offer from RSA Insurance Group after considering the proposal with its advisers, the London-based insurer said in a statement today. Operating a life and non-life business model delivers capital and earnings benefits, and having a general insurance division will help to increase the dividend, Aviva said.

Investors may start pushing for the breakup of Aviva following the RSA offer because the units may be worth more than the value of the group, based on its share price. UK insurers tend to specialise in life assurance or general insurance, whereas Aviva operates in both areas.

“From a short-term point of view, a breakup could generate more profit for shareholders,” said Paul Mumford, who helps manage about $1bn at Cavendish Asset Management in London and holds Aviva and RSA stock. “This really puts a firework under the directors of Aviva’s tails to get this business to perform.”

Aviva climbed 3.5p, or 0.9pc, to 390.9p as of 8:30 a.m. in London trading, giving the company a market value of almost €11bn. The shares have declined 2pc this year. RSA dropped 1pc to 126.1p today.

Earnings potential

The acquisition would be RSA Chief Executive Officer Andy Haste’s biggest in his seven years at the helm and would add to the company’s focus on home and car insurance. A purchase would surpass RSA’s €4.4bn market capitalisation, leaving Aviva to concentrate on life insurance in the UK and Europe.

The current performance of Aviva’s general insurance unit doesn’t reflect its full earnings potential because the market is at a “cyclical low,” the company said in the statement. The general insurance businesses “in aggregate” made operating profit of £1bn in 2009, compared with £1.7bn pounds in 2006.

“Given the compelling strategic and financial benefits to Aviva shareholders of retaining the general insurance business, its upside potential and the terms offered by RSA, the board was unanimous in rejecting this proposal,” Aviva Chairman Colin Sharman said in the statement.

Bloomberg

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