Scuttled Deal Best for Shareholders: Aviva

Market recovery, business synergies prompt insurer to keep gen business.

Aviva plc has confirmed that it rejected an offer for several of its general insurance businesses–including those in Canada–saying that it “is convinced that the highest value to shareholders will be delivered by retaining these businesses within the group.”

The UK-based insurer acknowledged a £5 million ($7.8 million) offer from RSA in an August 16 statement. The board unanimously rejected the offer–which included Aviva’s general insurance businesses in the U.K., Ireland and Canada, according to Lord Sharman, Aviva’s chairman.

“The Aviva Board considered RSA’s proposal carefully,” he said in the statement. “Given the compelling strategic and financial benefits to Aviva shareholders of retaining the GI business, its upside potential and the terms offered by RSA, the Board was unanimous in rejecting this proposal.”

Aviva officially refused the offer August 6.

Value and benefits

The company’s statement outlines the factors influencing its decision–including the current market and expected recovery–and hints that the offer amount undervalued its general insurance arm.

“Aviva is the leading general insurance business in the UK and Ireland, and the number two player in Canada, and should be valued accordingly,” the statement notes.

Timing also played a role: noting that the market is in a cyclical low, “the current business performance does not reflect its full earnings potential.”

A recent strategic review also supported the decision to keep the general insurance business, citing “significant capital and earnings benefits” from both the life and non-life businesses.

Keeping them also allows the company to continue maximizing the synergies of a global brand, such as cross-selling and sharing back office functions.

“The progress we’re making in reshaping and transforming Aviva was evident in the 21% increase to £1.27 billion of operating profits at our interim results and we firmly believe this strategy will continue to deliver superior value for our shareholders,” said Andrew Moss, Aviva’s group chief executive.

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