Aviva, the UK-based insurer, is being viewed as a potential takeover target following a successful clean-up operation led by its chief executive, Amanda Blanc. Blanc took over the role in mid-2020 and has since streamlined Aviva’s operations, exiting eight international markets and focusing on the UK, Ireland, and Canada. The company returned almost £5 billion to shareholders through these disposals and has also made more credible dividend promises.
Despite these positive developments, Aviva’s shares are considered cheap based on conventional metrics, making it an attractive target for potential buyers. Even after a recent share price increase following rumors of a takeover bid, the dividend yield still stands at 8%. Aviva holds a prominent position in the UK’s general insurance market, particularly in car and home insurance, and is expected to continue generating excess cash.
However, Aviva’s life assurance and pensions business, which accounts for the other half of its profits, has faced skepticism from investors. The portfolio of underlying assets in this segment includes UK commercial property holdings, which are currently experiencing weak valuations. Other factors contributing to Aviva’s low stock market rating include the unloved status of the UK economy, the UK stock market, and financial services firms overall.
Rumors of a potential takeover bid for Aviva at 600p per share have circulated, but analysts believe this valuation would be challenging for any acquirer. Such a bid would represent a premium of approximately 50% and could potentially harm the acquirer’s own valuation. Furthermore, a serious contender for the acquisition, the German financial services group Allianz, is already the second-largest general insurance provider in the UK. This would likely trigger a lengthy and unpredictable competition inquiry.
While the possibility of a takeover cannot be ruled out entirely, industry experts advise Blanc and her team not to be distracted by speculative discussions. Selling a highly-regulated and valuable company like Aviva, which is currently valued at £11 billion, would be a complex and time-consuming process. Unless a fully-funded and highly-priced bid is put forward, Blanc and her team believe Aviva does not require rescuing and should continue focusing on its current operations.
Overall, Aviva’s recent reorganization efforts have garnered positive results, making it an attractive target for potential buyers. However, the complexities and challenges associated with a takeover, coupled with Aviva’s improved financial position, suggest that the company should remain focused on its existing strategy rather than entertaining acquisition discussions.
More detail via The Guardian here… ( Image via The Guardian )