Aviva set to sell US division at £800m loss
Aviva is preparing to sell its US division after receiving approaches for the business it bought for £1.8bn in 2006.
By James Quinn
9:43PM BST 28 Jul 2012
The FTSE 100 insurer, which is going through a restructuring following the departure of chief executive Andrew Moss and the appointment of executive chairman John McFarlane, is understood to have received a number of unsolicited approaches from financial and private equity buyers for its US life division, known as Aviva USA.
The news will be welcomed by investors ahead of the insurer’s interim results on August 9, at which it is expected the current dividend will be maintained as a result of capital management by Aviva’s new executive team. Some investors had been concerned that the dividend may be reduced, after Mr McFarlane said earlier this month it was “trying to hold” it.
The Sunday Telegraph understands that Pat Regan, chief financial officer, has spent a considerable amount of his time in Des Moines, Iowa, where the business is headquartered, to prepare the business for sale and begin to marshal the process.
Although it is understood an investment bank has not yet been formally appointed to run the process, it is thought the company’s executives have selected a bank to do so, believed to be Goldman Sachs.
Mr McFarlane, who was originally appointed as non-executive chairman but stepped up to take on an executive role after the exit of Mr Moss following the company’s bruising annual meeting, is believed to be prepared to sell the business to assist the group’s capital levels.
He is believed to have told investors in recent weeks that under Solvency II, European insurance rules that require companies to hold more capital against assets such as its US business, it no longer makes financial sense to hold on to the asset.
In Mr McFarlane’s strategy update earlier this month he signalled his intent to focus only on overseas assets that could be in a strong position in their home market. The US arm does not appear to fit that criteria.
The sale of Aviva USA, formerly known as AmerUs, will lead to the crystallisation of an approximate £800m write-off, as a result of its fall in value.
Aviva agreed to buy AmerUs in July 2006 for $2.9bn (£1.8bn), just before Mr Moss took over as chief executive. The deal was predicated on building a leading position in the world’s largest savings market, combining AmerUs with Aviva’s existing US operations. However, in its most recent results, for the three months to the end of March, group internal rate of return for Aviva USA had slipped to 13pc from 14pc in the same period a year earlier.
Once the sales process is formally under way, it is thought the business will appeal to both those financial buyers who have already expressed interest, plus US trade buyers looking to bolster their existing presence.
At his strategy presentation earlier this month, Mr McFarlane, the former chief executive of Australia’s ANZ bank, detailed a review of its 58 businesses, and said that a total of 16 had been deemed to be “non core”. At the time, Aviva refused to comment publicly on whether Aviva USA fell into this category.
The “non core” descriptor was placed on businesses that Mr McFarlane and his advisers, including Mr Regan, felt should either be sold or wound down.
Last Friday, Aviva’s head of high growth markets, Simon Machell, said that the insurer plans to leave Taiwan to focus on other areas. It is set to sell its 49pc stake in First-Aviva Life Insurance, its Taiwanese joint venture.
Other businesses exited before Mr McFarlane’s review include units in Hungary, Romania, the Czech Republic and Australia.
Shares in the insurer closed up 7.3p at 286.4p on Friday, valuing the business at £8.3bn. However, despite the slight rise, the shares remain way off two-year highs of 475.1p reached in March 2011.
A spokesman for Aviva declined to comment.