Aviva told to deliver or see itself split up

INVESTORS piled pressure on Aviva to come up with a credible alternative to being broken up yesterday as the insurer formally knocked back rival RSA’s “unacceptable” £5bn approach for its general insurance business.

Shareholders are disgruntled at Aviva’s decision not to consult them before rejecting the offer for the group’s property and casualty operations in the UK, Ireland and Canada. RSA’s interest has stirred up longstanding frustration at Aviva’s inability to close the gap between its embedded value and share price.

Euan Stirling at Standard Life Investments (SLI), which owns shares in both FTSE 100 firms, broke cover to say: “If RSA were to come back with a more serious bid, Aviva would have to take that more seriously and who knows what happens beyond that. Maybe the cat’s out of the bag then.”

Another institutional investor told City A.M.: “The main result of the bid is to raise questions over whether Aviva could be split up and become an acquisition target.”

Investors, led by SLI and Royal London Asset Management, are demanding action to stimulate Aviva’s value if the board continues to refuse talks with RSA.

Their calls came as RSA issued an aggressive statement accusing Aviva’s management of squeezing a poor return on equity from the business since chief executive Andrew Moss took over in 2006. RSA said its offer was “fair” at 9.8 times 2010 earnings.

Aviva retorted by arguing RSA was trying to buy its general insurance arm at a low point in the cycle. RSA’s offer was “unacceptable and not in the best interests of shareholders”.

Shares in Aviva ended 2.5 per cent down at 377.9p. Shares in RSA closed down 2.3 per cent at 124.5p.