Aviva plc - Partial Sell Down of Delta Lloyd

RNS Number : 7081E

Aviva PLC

11 April 2011

 



NOT FOR PUBLICATION OR DISTRIBUTION IN THE UNITED STATES, CANADA, JAPAN OR AUSTRALIA

11 April 2011

Aviva Announces Intention to Sell Part of its Shareholding in Delta Lloyd

·      Disposal of approximately 15% of Delta Lloyd's issued ordinary share capital, would result in Aviva's ordinary shareholding reducing from 58% to approximately 43%

·      Consistent with Aviva's strategy of focusing on twelve markets where it has strength and scale

·      Cash proceeds would enhance liquidity and further strengthen Aviva's balance sheet

·      Accelerated book-building to start today.  Settlement of partial disposal subject to Aviva shareholder approval at an extraordinary general meeting

Aviva plc ("Aviva") announces that it intends to sell part of its shareholding in Delta Lloyd NV ("Delta Lloyd").  The partial disposal of these shares will be through a private placement to qualified institutional investors (the "Offering").

The Offering is expected to comprise approximately 25 million Delta Lloyd ordinary shares, subject to investor demand, equivalent to 15.1% of Delta Lloyd's issued ordinary share capital (excluding treasury shares) and 14.0% of Delta Lloyd's voting rights.  The offer price will be determined after an accelerated book-building process which starts today. 

The Offering is expected to constitute a class 1 transaction under the Listing Rules.  As a consequence, settlement would be conditional on the approval of Aviva shareholders which would be sought at an extraordinary general meeting of Aviva, expected to be held on 4 May 2011. 

Following the sale of all the Delta Lloyd ordinary shares available in the Offering, Aviva's remaining stake would comprise approximately 71.5 million Delta Lloyd ordinary shares, equivalent to 43.1% of Delta Lloyd's issued ordinary share capital (excluding treasury shares) and 40.0% of Delta Lloyd's voting rights.

Commenting on the Offering, Andrew Moss, Group Chief Executive of Aviva, said:

"This is an important step in delivering our strategy.  Reducing our shareholding in Delta Lloyd will not only enhance our liquidity and further strengthen our balance sheet but is also consistent with our focus on pursuing profitable growth in markets where we have strength and scale."

Benefits for Aviva and its shareholders

Aviva believes that the Offering is consistent with the group's strategy of prioritising investment in the twelve markets where Aviva has strength and scale, which do not include the Benelux region. 

As a result of the Offering, Aviva would have a strengthened balance sheet, reflecting: the cash proceeds; reduced exposure to Delta Lloyd's investment portfolio; the opportunity to redeploy capital away from the Benelux region; and continue the group's structural and portfolio transformation.

The cash proceeds would be held on the group's balance sheet as cash and cash equivalents, which would enhance the group's liquidity position, thereby providing greater financial flexibility, and would be used for general corporate purposes.

The Delta Lloyd share price has increased by 19% since Delta Lloyd was floated at an offer price of €16.00 per ordinary share in November 2009.  Aviva believes that the Offering provides a strategic opportunity to realise value for its shareholders.  Through its remaining minority stake in Delta Lloyd, Aviva would benefit from the enhanced liquidity in Delta Lloyd ordinary shares resulting from the increased free-float, while continuing to receive dividend income and sharing in the expected benefits of the operational improvement programme previously announced by Delta Lloyd.

Financial Impact of the Offering on Aviva

The sale of all the Delta Lloyd ordinary shares available in the Offering is expected to result in Aviva's shareholding in Delta Lloyd's issued ordinary share capital (excluding treasury shares) reducing from 58.2% to approximately 43.1%.  Since the Offering is expected to result in Aviva holding less than 50% of the voting rights in Delta Lloyd, Aviva would no longer consolidate the results of the Delta Lloyd group.

Had the Offering occurred at the start of the year ended 31 December 2010, IFRS operating earnings per ordinary share would have been reduced by 4% from 55.1 pence to 53.1 pence. Aviva will provide a detailed update on the financial impacts of the Offering following pricing which is expected to occur on 12 April 2011.

Had the Offering and subsequent deconsolidation of Delta Lloyd occurred at 31 December 2010, it would have reduced the group's consolidated IFRS total assets by around £58 billion from £370 billion to £312 billion, which primarily relates to Delta Lloyd's loans (including mortgages) and financial investments (including equities, corporate bonds and government bonds).

Delta Lloyd NV has a Standard & Poor's ("S&P") long-term counterparty credit rating of 'A-', with the main operating entities, Delta Lloyd Levensverzekering NV and Delta Lloyd Schadeverzekering NV, rated 'A+'.  On 21 December 2010, S&P published the rationale of these   credit ratings.  For the potential impact of the Offering on Delta Lloyd's credit ratings, please refer to that press release.     

Current Trading Update

As required under the Listing Rules for a class 1 transaction, Aviva is required to provide an update on current trading in the shareholder circular.

2010 was a successful year for Aviva.  The group's business grew and the benefits of its transformation over recent years have also started to come through.  As set out in Aviva's 2010 Annual Report and Accounts:

·      the group's IFRS operating profit grew by 26% to £2.55 billion;

·      the group delivered a life new business internal rate of return ("IRR") of 12.5% and a general insurance combined operating ratio ("COR") of 96.8%; and

·      the group exceeded its target for capital generation, increasing net operational capital generated to £1.7 billion.

The group continues to focus on profitability and capital, managing its new business flows in a disciplined way, and driving further value from its existing operations.  The Group expects operating profitability for the period from 31 December 2010 to 31 March 2011 ("Q1 2011") to be in line with its expectations. 

In Q1 2011, the group expects life and pensions new business volumes to be in line with Q4 2010 and around 10-15% lower than in Q1 2010.  This is primarily driven by the group's management actions both in the United States, where the group continues to focus on developing the profitability of the business, and in Italy, where the group saw very strong new business volumes in the first quarter of 2010 which will not be matched in Q1 2011.  At the same time, the group's focus on improving profitability means that the new business margin in Q1 2011 is expected to improve compared with the full year 2010.  The group expects overall general insurance net written premiums to continue to increase, building on the momentum seen in 2010.  There has been no significant change in the trends described above between the end of Q1 2011 and the date of this announcement.

Aviva's IGD Surplus as at 31 March 2011 is expected to be lower than at the end of 2010, primarily driven by recognition of the final dividend declared in March 2011.

As announced by Delta Lloyd on 7 April 2011, due to credit rating downgrades in March 2011, a number of the bonds in Delta Lloyd's collateralised AAA bond curve no longer meet the set criteria and have therefore been excluded from its yield curve with effect from 1 April 2011. Compared to 31 December 2010, the 10-year yield curve as at 1 April 2011 was approximately 40 basis points lower.  The calculation of Delta Lloyd's regulatory (IGD) solvency is mainly based on the ECB AAA yield curve.  Compared to 31 December 2010, the ECB AAA yield curve as at 1 April 2011 was 34 basis points higher on the 10-year yield curve.

The group has set a number of near-term, demanding financial targets for the current financial year.  It aims to deliver:

·      at least £1.5 billion net operational capital generation in 2011;

·      life IRR for the year of at least 12% with payback of 10 years or less; and

·      general insurance COR of 97% or better.

In 2010 the group met these targets and it is on course to deliver them in 2011.

In addition, the group has set a further target of £200 million of cost savings and £200 million of efficiency gains by the end of 2012 (which, as previously announced, includes €100 million of cost savings and efficiency gains attributable to Delta Lloyd). The group also expects to progress some portfolio changes in 2011 as part of its strategy of prioritising investment in the twelve markets where Aviva has strength and scale, which do not include the Benelux region.

A further announcement will be made following completion of the book-building andpricing of the Offering.

Aviva will enter into a placing agreement with Morgan Stanley and Goldman Sachs to act as placing agents in relation to the Offering. The placing agreement contains customary terminations rights in favour of the placing agents.  Aviva has undertaken not to dispose of any further Delta Lloyd shares to a person outside the Aviva group without the consent of the bookrunners for a period of 90 days following completion, subject to certain limited exceptions.

Morgan Stanley and Goldman Sachs will be acting as Joint Global Co-ordinators, Bookrunners and Placing Agents, with Morgan Stanley as Sole Sponsor for the Offering.

Enquiries:

Media

Nigel Prideaux                                                                         [phone]

Andrew Reid                                                                           [phone]

Sue Winston                                                                           [phone]

Rashmi Gautam                                                                     [phone]

Conor McClafferty, Finsbury                                                   [phone]

Analysts

Charles Barrows                                                                     [phone]

Notes to editors:

Background on Aviva's investment in Delta Lloyd

§ Prior to November 2009, Delta Lloyd's entire issued ordinary share capital (and 92% of Delta Lloyd's voting rights) was owned by CGU International Holdings BV, a wholly owned subsidiary of Aviva.

§ In November 2009, Aviva completed the successful initial public offering ("IPO") and partial sale of its shareholding in Delta Lloyd on NYSE Euronext Amsterdam, pursuant to which Aviva disposed of its indirect 41.1% interest in the ordinary share capital of Delta Lloyd at an offer price of €16.00 per Delta Lloyd ordinary share.

§ The Delta Lloyd IPO and partial sale raised total gross cash proceeds of £1.0 billion, which provided Aviva with greater financial flexibility to reallocate capital and explore other growth opportunities, as well as enhancing the liquidity of Aviva's remaining stake in Delta Lloyd.

§ Prior to the Offering, Aviva indirectly owns 96,488,795 Delta Lloyd ordinary shares, equivalent to 58.2% of Delta Lloyd's issued ordinary share capital (excluding treasury shares) and 53.9% of Delta Lloyd's voting rights. 

About Delta Lloyd 

§ The Delta Lloyd Group is a financial services provider offering life insurance, general insurance, asset management and banking products and services. 

§ In 2010, Delta Lloyd contributed to Aviva IFRS operating profit of £536 million and IFRS profit before tax of £895 million, and, as at 31 December 2010, IFRS net assets of £4.3 billion, and MCEV net assets of £3.1 billion.

§ Delta Lloyd's target markets are the Netherlands and Belgium. The Delta Lloyd Group operates primarily under the brand names of Delta Lloyd, OHRA and ABN AMRO Insurance in the Netherlands, and under the Delta Lloyd name in Belgium.

About Aviva

§ Aviva is a leading provider of life and pension products in Europe (including the UK) with substantial positions in other markets around the world, making it the world's sixth largest insurance group based on gross worldwide premiums at 31 December 2009.

§ Aviva's principal business activities are long-term savings, fund management and general insurance, with worldwide total sales* of £47.1 billion and funds under management of £402 billion at 31 December 2010.

This announcement does not constitute a prospectus or an offer or invitation to purchase securities.

This announcement is only addressed to, and directed at, persons in member states of the European Economic Area who are "qualified investors" within the meaning of Article 2(1)(e) of the Prospectus Directive (Directive 2003/71/EC) ("Qualified Investors").  In the United Kingdom, this announcement is directed only at, Qualified Investors (i) who are persons having professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Order"), or (ii) persons who are high net worth entities falling within Article 49(2) of the Order, and other persons to whom it may lawfully be communicated.  Under no circumstances should persons of any other description rely or act upon the contents of this announcement. 

These materials are not an offer of securities for sale into the United States. The securities to which these materials relate have not been registered under the US Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States absent registration or an exemption from, or in a transaction not subject to, registration under the Securities Act, including pursuant to the private offering exemption provided by Section 4(2) of the Securities Act and outside the United States in reliance on Regulation S under the Securities Act. There will be no public offering of the securities in the United States.

The Offering and the distribution of this announcement and other information in connection with the Offering in certain jurisdictions may be restricted by law and persons into whose possession any document or other information referred to herein comes should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. The price and value of the Delta Lloyd shares may go up as well as down. Persons needing advice should contact a professional adviser. Past performance cannot be relied upon as a guide to future performance.

Morgan Stanley & Co. International plc ("Morgan Stanley"), which is authorised and regulated by the Financial Services Authority, is acting for Aviva and for no one else in connection with the Offering and will not be responsible to anyone other than Aviva for providing the protections afforded to customers of Morgan Stanley or for affording advice in relation to the Offering, the contents of this announcement or any transaction, arrangement or other matter referred to in this announcement.

Goldman Sachs International plc ("Goldman Sachs"), which is authorised and regulated by the Financial Services Authority, is acting for Aviva and for no one else in connection with the Offering and will not be responsible to anyone other than Aviva for providing the protections afforded to customers of Goldman Sachs or for affording advice in relation to the Offering, the contents of this announcement or any transaction, arrangement or other matter referred to in this announcement.

This announcement has been issued by and is the sole responsibility of Aviva.  Apart from the responsibilities and liabilities, if any, that may be imposed on Morgan Stanley and Goldman Sachs by the Financial Services and Markets Act 2000 or the Listing Rules, Morgan Stanley and Goldman Sachs do not accept any responsibility whatsoever and makes no representation or warranty, express or implied, for the contents of this announcement, including its accuracy, completeness or verification or for any other statement made or purported to be made by Aviva, or on Aviva's behalf, or by Morgan Stanley or Goldman Sachs, or on Morgan Stanley's or Goldman Sach's behalf, in connection with Aviva or the Offering, and nothing in this announcement is or shall be relied upon as a promise or representation in this respect, whether as to the past or future. Morgan Stanley and Goldman Sachs accordingly disclaims to the fullest extent permitted by law all and any responsibility and liability, whether arising in tort, contract or otherwise, which it might otherwise have in respect of this document and any such statement.

Cautionary statements:

This announcement contains, and Aviva may make verbal statements containing, "forward-looking statements" with respect to certain of Aviva's plans and current goals and expectations relating to future financial condition, performance, results, strategic initiatives and objectives. Statements containing the words "believes", "intends", "expects", "plans", "seeks", "aims", "may", "could", "outlook", "estimates" and "anticipates", and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. Aviva believes these factors include, but are not limited to: the impact of difficult conditions in the global capital markets and the economy generally; the impact of new government initiatives related to the financial crisis; defaults in the group's bond, mortgage and structured credit portfolios; the impact of volatility in the equity, capital and credit markets on the group's profitability and ability to access capital and credit; changes in general economic conditions, including foreign currency exchange rates, interest rates and other factors that could affect the group's profitability; risks associated with arrangements with third parties, including joint ventures; inability of reinsurers to meet obligations or unavailability of reinsurance coverage; a decline in the group's ratings with Standard & Poor's, Moody's, Fitch and A.M. Best; increased competition in the U.K. and in other countries where the group has significant operations; changes in assumptions in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends, lapse rates and policy renewal rates), longevity and endowments; a cyclical downturn of the insurance industry; changes in local political, regulatory and economic conditions, business risks and challenges which may impact demand for the group's products, the group's investment portfolio and credit quality of counterparties; the impact of actual experience differing from estimates on amortisation of deferred acquisition costs and acquired value of in-force business; the impact of recognising an impairment of the group's goodwill or intangibles with indefinite lives; changes in valuation methodologies, estimates and assumptions used in the valuation of investment securities; the effect of various legal proceedings and regulatory investigations; the impact of operational risks; the loss of key personnel; the impact of catastrophic events on the group's results; changes in government regulations or tax laws in jurisdictions where we conduct business; funding risks associated with the group's pension schemes; the effect of undisclosed liabilities, integration issues and other risks associated with the group's acquisitions; and the timing impact and other uncertainties relating to acquisitions and disposals and relating to other future acquisitions, combinations or disposals within relevant industries.

For a more detailed description of these risks, uncertainties and other factors, please see "Risk Factors" and "Performance Review -- Financial and Operating Performance" in Aviva's 2010 Annual Report and Accounts. Aviva undertakes no obligation to update the forward-looking statements in this announcement or any other forward-looking statements we may make. Forward-looking statements in this announcement are current only as of the date on which such statements are made.

-  ends -

* Based on 2010 published life and pensions PVNBP on a MCEV basis, total investment sales and general insurance and health net written premiums, including share of associates' premiums.

 

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