RSA, THE UK’s biggest non-life insurer, tried to buy Aviva’s Irish general insurance business but was rebuffed. The bid was part of a wider RSA £5 billion (€6.11 billion) offer for Aviva’s general business in the Republic, the UK and Canada.
Aviva rejected the move and there are no negotiations between the two parties at the moment. Officials and Aviva and RSA declined to comment, but some analysts believe the development could signal the start of divestments by the targeted firm.
“This might be the start of a break-up of Aviva,” said Colin Morton at Rensburg Fund Management in Leeds. “Aviva is one of those businesses where the sum of the parts are worth more than the current share price. It’s potentially good news.”
Shares in Aviva climbed yesterday in London, adding 5.5 per cent to close at £3.87. This gives the group a £10.3 billion market capitalisation. By contrast, RSA’s shares weakened. RSA is already the largest general insurer in the Republic, having acquired online insurance business 123.ie last month for more than €65 million.
Any possible Aviva acquisition would be RSA chief executive Andy Haste’s biggest in his seven years at the insurer and would add to the company’s focus on home and car insurance.
A purchase would surpass RSA’s £4.4 billion market capitalisation and would leave Aviva to concentrate on life insurance in the UK and Europe. Aviva also has an Irish health insurance business.
Pretax profit at Aviva’s total general insurance and health insurance division declined 3.7 per cent to £525 million in the first half of the year, compared with the same period a year earlier. The unit represented more than 24 per cent of the company’s pretax operating profit in the first half.
“It’s not surprising that people are looking at the possibility of breaking it upbecause Aviva is very cheap,” said Jane Coffey at Royal London Asset Management.
“It raises the question over whether it is better to sell off the general insurance unit to someone who can run it better.”
The offer would probably need to be increased to about £6 billion pounds before shareholders find such a bid compelling, Ms Coffey said. Aviva and RSA beat analysts’ estimates and raised their dividends when they reported first-half results this month.
The insurers benefited from the economic recovery, which pushed clients to spend more protecting their retirement and property.
RSA, which insures homes, cars and ships in 130 countries, had been increasing revenue through small acquisitions, other than the 123 deal, outside its slower-growing home market. Mr Haste said in February he would consider more acquisitions after completing 30 transactions since 2003. The approach was made by RSA chairman John Napier in a letter to Aviva chairman Colin Sharman, according to Sky News, which reported the offer yesterday.
RSA may have difficulty raising the money to fund a takeover because the amount needed would be larger than its market value, said Marcus Barnard, an analyst at Oriel Securities in London. Prudential pulled out of an attempted takeover of American International Group’s main Asian unit after investors questioned the size of the rights offering needed to fund the deal. – (Bloomberg)
