Shares in Aviva, the UK’s biggest insurer, jumped after reports that it could be the target of a takeover by a foreign buyer.
Its shares rose as much as 10% at one point on Friday before closing 5% higher at 407.9p, valuing the company at £11.2bn and catapulting it to the top of the FTSE 100 index. Other UK insurance stocks, including Legal & General, Prudential and Phoenix, also rose.
The markets blog Betaville and the Times newspaper reported that Aviva had attracted takeover interest from several international rivals.
It has previously been linked with Germany’s biggest insurer, Allianz, while Canada’s Intact Financial Corporation and the Danish insurer Tryg are reportedly considering their options, along with a US insurer, with a £6-a-share proposal mooted, according to the Times.
A City source told the Guardian there had been some discussions with suitors.
There was no statement from Aviva or any of the other companies.
Intact, Canada’s largest property and casualty insurer, has been on a buying spree in the UK, snapping up Direct Line’s brokered commercial business for £520m last month. With Tryg, the largest general insurer in Scandinavia, the Canadian firm bought the RSA Insurance Group, the owner of the More Than brand, in a £7.2bn deal in 2021, which resulted in the breakup of the 300-year-old company.
Aviva offers pensions, life and health insurance, car, home and travel cover and has 15.5 million customers in the UK. It is the largest life insurer, with a 20% share of the market, and the No 1 general insurer, with a 10% slice of the market. In Canada, it is the second-biggest insurer, behind Intact, with a range of general insurance products and an 8% market share.
This means a deal with Intact could raise competition concerns. Allianz is the second-largest player in the UK general insurance market, behind Aviva, and any combination would probably trigger a competition inquiry.
Analysts at JP Morgan said the Aviva chief executive, Amanda Blanc, had transformed the insurer into a “highly investible company”, but thought that any takeover would be complicated.
Aviva’s share price has risen by 50% since Blanc became chief executive in July 2020, although it is down 9.1% so far this year.
Blanc has sold off most overseas businesses to focus on the UK, Ireland and Canada. In August, Aviva posted an 8% rise in operating profit to £715m for the first half of the year and raised its dividend. Blanc has talked about “big opportunities” in expanding private health cover in the UK as NHS waiting lists hit a record high.
Aviva bought the US insurer AIG’s UK protection business for £460m last week, Blanc’s biggest deal so far, and is the preferred bidder with partners to build a large cancer research and treatment campus in Sutton, south London.
The activist investor Cevian Capital sold down its entire stake in Aviva in May, saying Blanc and her team had done an “excellent” job in improving the company’s fortunes. Analysts said this meant Cevian was no longer “causing mischief”, and removed an obstacle to a potential takeover.
UK equities are relatively cheap because of a combination of factors, including cheaper sterling, political instability, and an exodus of companies and investors from the London market because of pessimism about the country’s poor growth prospects in comparison with other economies.
The UK was on course to be the second-worst performer in the G7 group of large economies this year after Germany, the International Monetary Fund predicted in June.
Russ Mould, the investment director at AJ Bell, said: “Aviva is left as one of many stocks on the UK market looking unloved but still offering the potential for long-term value generation.
“The business is forecast to have strong, free cashflow and excess capital, and its valuation is cheap. It has slimmed down in recent years to focus on the stronger parts of the group and there is now an opportunity to increase its position in bulk annuities, which looks like a more prosperous market thanks to higher gilt yields.”
Mould said one of the obvious times to buy a company was when it had made solid progress with a turnaround programme as that reduced the investment risk.
“Aviva has cast off the shackles of being a conglomerate and sharpened its focus as a result of asset disposals and a new impetus to grow, making it a stronger business,” he said. “Naturally, that makes it more appealing to a would-be suitor.”
