RSA said to bid $7.8 bn for Aviva's assets

RSA Insurance Group Plc, the UK’s biggest non-life insurer, made a 5 billion-pound ($7.8 billion) bid for Aviva Plc’s general insurance business in the UK, Canada and Ireland, according to two people with knowledge of the situation.

The bid was rejected by Aviva and there are no current negotiations between the two companies, said the people, declining to be identified because the matter is private. Officials at Aviva and RSA wouldn’t comment.

Aviva gained 5.5 per cent to 387.4 pence, giving it a market value of 10.9 billion pounds at 4:35 pm in London trading. RSA dropped 0.9 per cent to 127.4 pence.

 

“This might be the start of a break up of Aviva,” said Colin Morton, who helps manage $1.5 billion including RSA and Aviva stock at Rensburg Fund Management in Leeds, England. “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.”

The acquisition would be RSA Chief Executive Officer 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-pound market capitalisation and would leave Aviva to concentrate on life insurance in the U.K and Europe.

Aviva profit
Pretax profit at Aviva’s general insurance and health insurance division declined 3.7 percent to 525 million pounds 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 up,” because Aviva is “very cheap,” said Jane Coffey, who helps manage $51 billion including Aviva stock 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, Coffey said.

Aviva and RSA beat analysts’ estimates and raised their dividends when they reported first-half results this month. The insurers benefitted 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 outside its slower-growing home market. 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 earlier today.

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 Ltd. in London.