A merger between two of the U.K.'s biggest life insurers, Aviva and Prudential, is still possible despite Prudential's desire to remain independent, an analyst says.
Aviva offered to buy Prudential on March 16 at a 10% premium to its market value. Prudential swiftly rejected the offer, saying that a merger would not be in the best interests of its shareholders.
But Duncan Russell, an analyst at investment bank Fox-Pitt, Kelton, says talks between the two firms have further to run. "We wouldn't rule Aviva coming back with a higher offer, or Prudential being snapped up by the likes of Axa, Manulife Financial or a bank like HBOS," he says.
Aviva declined to say whether it is considering raising its bid or making an offer for another firm. Company spokeswoman Hayley Stimpson says it is bound by rule 32.2 of the City Code on Takeovers not to comment on its plans.
The insurer has not issued a so-called no increase statement, meaning it retains the option to raise its bid. Stimpson is adamant, however, that Aviva will not engage in a hostile takeover. "This is a friendly approach, not a hostile one," she says. "There has been no change to the proposal we put to Prudential."
Russell believes it is unlikely Aviva would consider other acquisition targets if it is snubbed a second time because Prudential offers it something other firms do not. "It is highly unlikely Aviva will go for one of the other U.K. players, like Standard Life or Friends Provident," he says. "Prudential is a strategic buy. It has a fantastic Asian franchise, which would be difficult to replicate organically."
Russell adds that the proposed deal highlights the growing appetite for mergers and acquisitions in the U.K. and continental European life market.
"M&A activity in the life market has been constrained because of the complexity of insurers' old books, as well as the limited synergies and economies of scale," explains Russell. "But it has become a bit more attractive in Europe, what with companies repairing their balance sheets and the new capital requirements under Solvency II."
Aviva offered to buy Prudential on March 16 at a 10% premium to its market value. Prudential swiftly rejected the offer, saying that a merger would not be in the best interests of its shareholders.
But Duncan Russell, an analyst at investment bank Fox-Pitt, Kelton, says talks between the two firms have further to run. "We wouldn't rule Aviva coming back with a higher offer, or Prudential being snapped up by the likes of Axa, Manulife Financial or a bank like HBOS," he says.
Aviva declined to say whether it is considering raising its bid or making an offer for another firm. Company spokeswoman Hayley Stimpson says it is bound by rule 32.2 of the City Code on Takeovers not to comment on its plans.
The insurer has not issued a so-called no increase statement, meaning it retains the option to raise its bid. Stimpson is adamant, however, that Aviva will not engage in a hostile takeover. "This is a friendly approach, not a hostile one," she says. "There has been no change to the proposal we put to Prudential."
Russell believes it is unlikely Aviva would consider other acquisition targets if it is snubbed a second time because Prudential offers it something other firms do not. "It is highly unlikely Aviva will go for one of the other U.K. players, like Standard Life or Friends Provident," he says. "Prudential is a strategic buy. It has a fantastic Asian franchise, which would be difficult to replicate organically."
Russell adds that the proposed deal highlights the growing appetite for mergers and acquisitions in the U.K. and continental European life market.
"M&A activity in the life market has been constrained because of the complexity of insurers' old books, as well as the limited synergies and economies of scale," explains Russell. "But it has become a bit more attractive in Europe, what with companies repairing their balance sheets and the new capital requirements under Solvency II."
