Aviva rejects $7.8 billion proposal from RSA for insurance units

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Aviva says RSA offer not in shareholder interest

LONDON — Insurer Aviva PLC said Monday it rejected a 5 billion pound ($7.8 billion) cash offer from rival RSA Insurance Group PLC for some of its general insurance businesses because the deal wasn’t in the best interest of shareholders.

Aviva, Britain’s leading general insurer with an estimated 15 percent market share, has come under fire from shareholders for failing to consult them, or notify the stock market of the interest in its general insurance assets in Britain, Ireland and Canada.

The company only confirmed on Monday — days after media reports — that it received the offer on July 28 and rejected it on August 6.

Aviva said that the general insurance market is currently at a cyclical low and the company’s current business performance did not reflect its full earnings potential.

“The Aviva Board considered RSA’s proposal carefully with a clear focus on maximising value for Aviva shareholders,” Chairman Colin Sharman said in a 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.”

Unlike other British insurers, Aviva sells both life assurance and general insurance under a composite model.

As well as its leading position in the general insurance market in Britain, it is also No. 1 in Ireland and No. 2 in Canada. But around 70 percent of its profits internationally come from life insurance and pensions.

The company said Monday that a recently completed strategic review determined the dual structure delivered significant capital and earnings benefits, and forecast further synergies over the short to medium term.

The Sunday Times newspaper reported that a handful of investors now want Aviva to carry out a full strategic review in order to examine the potential of a break-up of the business.

Jonathan Jackson, head of equities at Killik & Co. said that the current structure gives the group diversification and greater capital efficiency at a time when new solvency regulations may require the industry to raise additional capital.

“The presence of substantial balance sheet intangibles and exposure to long-term annuities and pension lines means Aviva is potentially more exposed to such changes,” said Jackson.

Shares in Aviva, which rose 5 percent on Friday after reports of RSA’s interest, were 0.6 percent lower at 384.9 pence at midday on Monday. RSA Insurance stock was down 1.3 percent at 125.8 pence.