Insurer Aviva (LON:AV.) today confirmed that on 28th July it received a conditional proposal from Royal & Sun Alliance Insurance Gr (LON:RSA) to acquire its general insurance businesses for a cash consideration of £5bn funded entirely from a rights issue by RSA. The proposal would have left the pension liabilities of the GI Business with Aviva as well as the general insurance businesses in the Netherlands, France, Italy, Poland, Turkey and Singapore. The Board of Aviva considered the proposal carefully in conjunction with its advisers and is convinced that the highest value to shareholders will be delivered by retaining these businesses within the group.
In considering RSA's proposal, the Board of Aviva had particular regard to the following:
- As part of its normal planning process the Board, supported by external advisers, recently completed a strategic review and concluded that having both Life and Non-Life businesses delivers significant capital and earnings benefits and that there are further synergies to be realised over the short to medium term.
- Aviva said as the leading general insurance business in the UK and Ireland, and the number 2 player in Canada, it should be valued accordingly.
- The general insurance market is presently at a cyclical low.
Accordingly, the current business performance does not reflect its full earnings potential. For example, Aviva's general insurance businesses in aggregate made operating profits of £1.0bn in 2009 compared to £1.7bn in 2006. Aviva said its recent 2010 first half results demonstrated the significant momentum delivered by management's actions, with a material improvement in current year profitability, ahead of the market recovery occurring. Aviva said the GI busineess is highly cash generative and supports growth in the franchise alongside a healthy and increasing dividend for shareholders. Accordingly, it decided unanimously that RSA's proposal was unacceptable and not in the best interests of Aviva shareholders. Lord Sharman, Chairman, said:
"The Aviva Board considered RSA's proposal carefully with a clear focus on maximising value for Aviva shareholders. 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."
Andrew Moss, Group CEO, added:
"The progress we're making in reshaping and transforming Aviva was evident in the 21% increase to £1.27bn of operating profits at our interim results and we firmly believe this strategy will continue to deliver superior value for our shareholders."
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