Aviva may resort to direct approach to Prudential's shareholders

Aviva may resort to direct approach to Prudential's shareholders

	Published : Mon, 20 Mar 2006 09:20 By : David Simms Print this Story

LONDON: Consolidation efforts in the U.K.’s insurance industry are getting heated up. As Prudential Plc. rebuffed bigger rival and the country's No1 insurer Aviva Plc.'s unsolicited proposal for a merger, the latter is said to be considering a direct approach to the former's shareholders, possibly with a higher price tag.

Prudential, Britain's second largest insurer, rejected Saturday an approach from Aviva reportedly worth 17 billion pounds saying it had taken independent financial advice and considered the proposal to be unattractive. The company also clarified that it was not in talks with any other suitor as it is keen to continue as an independent company.

Sources said both the companies are likely to ascertain the views of the shareholders on the proposal.

Analysts felt Aviva should increase its 700 pence-a-share offer in order to get a response from Prudential as the latter had come out with strong results and its shares are expected to rise at least by 5 per cent Monday. They closed at 672 pence Friday.

A merger of the two could see the creation of a U.K.-based insurance behemoth valued around 38 billion pounds. Aviva has been eyeing for Prudential, especially in view of Prudential's strong U.S. and Asian operations.

Analysts now expect other suitors to show up. Names such as France's AXA and U.S. firm AIG are seen as interested parties. However, they feel Aviva is a better suitor as the two firms have highly complementary businesses. Prudential's strong presence in Asia and its profitable Jackson National Life in the U.S. can become great assets for Aviva, which does not have such a large presence in these two regions. Aviva, on the contrary, has a strong presence in Europe and also in the general insurance market in the U.K.

Analysts point out that Prudential's new management is not likely to give up control meekly. Its new chief executive Mark Tucker had taken over only recently and had been keen on guiding the company on a successful course. He delivered 33 per cent increase in the insurer's 2005 operating profit.

Aviva insiders expect the insurer's chief executive Richard Harvey to appeal directly to Prudential shareholders for support for the takeover. Harvey does not want a hostile bid and would like to integrate Prudential as he did in the case of Norwich Union, Commercial Union and General Accident.

The largest shareholders of Prudential are UBS, Schroders, Merrill Lynch and Legal & General. Harvey is likely to point out to these entities that Prudential has capital constraints in exploiting international opportunities and it is in their interest that a merger takes place so that the unified entity can effectively handle the challenges, especially the potential available in North America. .

Tucker on the other hand believes that Prudential's operations in the U.S. and Asia have better growth prospects that Aviva's European operations. Its presence in the U.K. annuity market is something very strategic as this segment is all set to achieve substantial growth in view of the crisis in the pension sector.