Aviva Rejects RSA’s Bid in the Best Interests of Shareholders

Recently, Aviva’s board of directors has completely rejected a £5bn offer from their rival, RSA, to buy its general insurance business in the UK, Ireland and Canada. There were reports that refusal had been announced quite late after the initial offer was made, and major shareholders had not been informed about the bid before the rejection and want Aviva to re-consider its decision.

However, Aviva issued a statement that “the Board of Aviva decided unanimously that RSA's proposal was unacceptable and not in the best interests of Aviva shareholders.”

This probably comes from a common displeasure with Aviva’s share price dynamics – they have fallen by 15% over the past year. But Aviva claims that the deal will not push their share prices up. Also, the group's half year results show an improved profitability, despite the slow market recovery.

Nevertheless, its non-life business, which is in discussions about being sold, in some expert’s opinion, brings significant costs which could be spent to develop life insurance direction. Aviva, on the contrary, strongly believes that operating in both Life and Non-Life businesses is beneficial to its capital and earnings, as operational costs of the two businesses combined is less than it would be for the two businesses on a stand-alone basis.

 Also, the company outlaid a sufficient amount of time and money to unite the Norwich Union non-life division with the Aviva brand. Life insurance customers of Aviva may welcome the deal – service quality could improve if Aviva concentrates its efforts purely on its life insurance sector. However, Aviva’s general insurance business in the UK, with a market share of around 13%, generate cash necessary to support business growth and increasing dividend for shareholders.

Whilst market analysts are pointing that the RSA is running its general insurance business better, Aviva seems unlikely to cut their assets at the supposed economic cycle bottom.

Lord Sharman, chairman of Aviva, commented: "The Aviva Board considered RSA's proposal carefully with a clear focus on maximising value for Aviva shareholders.”