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Aviva poised to sell off US life division at 'substantial discount' Aviva warns of huge loss on sale of US arm as part of radical shake-up
(about 7 hours later)
Aviva is inching closer to a sale of its US life business as part of a major revamp of its operations, but the insurer admitted it would have to knock down the price of the division. Aviva warned on Thursday that it would take a big loss on the sale of its US life insurance and annuities arm, which forms a key part of a shake-up aimed at boosting the insurer's flagging share price.
New chairman John McFarlane launched a drastic restructuring plan in July, which includes selling off or scaling back 16 underperforming businesses and improving the performance of 27 others. McFarlane has been running Aviva since shareholders, frustrated by the group's poor share price performance, ousted chief executive Andrew Moss in May. John McFarlane, the new chairman, set out a radical restructuring plan in July, which includes selling off or winding down 16 underperforming businesses – almost a third of group's operations – and improving the performance of 27 others.
The US life and annuities division is one of the 16. Aviva has also pulled out of Sri Lanka and sold down its stake in Dutch insurer Delta Lloyd. It plans to sell a further eight businesses next year and take "radical action" in five others, such as reducing capital allocated to them or stopping one or two altogether. McFarlane, a banker who headed Australia and New Zealand Banking Group for a decade, has been running Aviva since shareholders, frustrated by the group's poor share price performance, ousted chief executive Andrew Moss in May after a row over executive pay.
McFarlane said the sale of the US unit would be at a "substantial discount" to the division's book value of £2.4bn, and would happen "reasonably soon". "We would expect shareholders in general to support it," he added. McFarlane said the sale of the US division, which was bought just before the financial crisis erupted in 2006, would be at a "substantial discount" to its book value of £2.4bn, and would happen "reasonably soon". "We would expect shareholders in general to support it," he added.
Aviva's sales fell 5% to £28.9bn in the first nine months of the year. New business sales in the troubled markets of Ireland, Spain, Italy, Poland and "other developed" countries all fell by more than 30%. The value of the US arm was already written down by £876m in August. It is expected to sell for little more than $1bn, but the sale would also free up more than £1bn of capital, analysts say. Aviva is said to have received bids from Guggenheim Partners, an American privately owned financial services firm, and US private equity houses Apollo Global Management and Harbinger Capital Partners.
The company has further reduced its exposure to crisis-stricken eurozone countries, mainly to Italy. It now holds £5.2bn of Italian sovereign debt, compared with £6.4bn at the end of last year. McFarlane, who has vowed to only stay in areas "where we can win," admitted that it had taken longer than expected to get the group restructuring off the ground.
The search for a new chief executive is on track, with internal and external candidates being interviewed by Aviva's non-executive directors this week. But Aviva said the search for a new chief executive was on track, with internal and external candidates being interviewed by Aviva's non-executive directors this week. The board expects to make an appointment early in the new year, with finance chief Pat Regan seen as a strong candidate.
The US life and annuities division is one of the 16 units on the block. Aviva has also pulled out of Sri Lanka and sold down its stake in Dutch insurer Delta Lloyd. It plans to sell another eight businesses next year and take "radical action" in five others, such as taking capital out or winding them down. Its decision to pull out of the large-scale bulk annuity market in the UK earlier in the year is one example. Investec analyst Kevin Ryan expects the eight smaller businesses to be sold for book value.
Barrie Cornes, at Panmure Gordon, said: "Aviva remains a work in progress and we can understand nervousness of potential investors, but at the same time we view the valuation as compelling."
Sliding sales highlighted the challenges faced by McFarlane in turning the business around. Sales at Aviva, which sells home and car insurance along with life and savings policies across Europe, dropped 5% to £28.9bn in the first nine months of the year, with UK sales flat at £8bn. Life and pensions sales were down 10% to £18.8bn, with only Singapore and the US showing growth. New business sales in the troubled markets of Ireland, Spain, Italy and Poland all fell by more than 30%.