3. Acquisitions
3. Acquisitions
| Country | Date of acquisition |
% share acquired |
Total Net Asset acquired |
Cash Paid |
Costs | Total Consideration |
Goodwill | |
|---|---|---|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | ||||
| Name | ||||||||
| Erasmus Group | Netherlands | 26/03/2007 | 100% | 54 | 53 | 1 | 54 | - |
| Cajamurcia Vida | Spain | 06/06/2007 | 5% | 7 | 8 | 1 | 9 | 2 |
| Area Life | Italy | 26/09/2007 | 55% | 7 | 7 | - | 7 | - |
| Avipop Assicurazioni | Italy | 14/12/2007 | 50% | 136 | 184 | 4 | 188 | 52 |
| Cyrte Investments | Netherlands | 27/09/2007 | 85% | - | 37 | - | 37 | 37 |
| Hamilton Insurance | UK | 01/11/2007 | 100% | 55 | 55 | 2 | 57 | 2 |
| Hamilton Life Assurance | UK | 01/11/2007 | 100% | 24 | 44 | 1 | 45 | 21 |
| Total | 283 | 388 | 9 | 397 | 114 | |||
| Other: | ||||||||
| Smaller acquisitions giving rise to additional goodwill | 1 | |||||||
| Total goodwill arising in the year | 115 | |||||||
(i) Erasmus Group
On 26 March 2007, the Group's Dutch subsidiary, Delta Lloyd, acquired 100% of the shares in Erasmus Groep BV ("Erasmus") in the Netherlands. Erasmus writes both general insurance and long-term business, and the acquisition has further strengthened Delta Lloyd's position in the Dutch insurance market.
The value of Erasmus's distribution channels has been identified as a separate intangible asset and valued by an independent third party at £8 million, using estimated post-tax cash flows and discount rates. It has been assessed as having a life of 20 years and is being amortised on a straight line basis over that period. As permitted by IFRS 4, Insurance Contracts , an intangible asset of £12 million has also been recognised for the impact of discounting the non-life insurance liabilities, to bring them to fair value. This intangible asset will be amortised over the life of the relevant non-life insurance contracts.
The net assets as at the acquisition date in the table above are stated at their provisional values, and may be amended in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations.
The results of Erasmus have been included in the consolidated financial statements of the Group with effect from 26 March 2007, and have contributed £5 million to the consolidated profit before tax.
(ii) Bancassurance partnership with Cajamurcia
On 6 June 2007, the Group announced that it had entered into a long-term bancassurance agreement with Spanish savings bank Caja de Ahorros de Murcia (Cajamurcia) that will enhance the Group's leading position in the Spanish life market. Cajamurcia will provide exclusive access to its network of branches to Cajamurcia Vida y Pensiones de Seguros y Reaseguros SA (Cajamurcia Vida), the newly-created life insurance company jointly-owned by the Group and Cajamurcia, to sell insurance and pension products. Regulatory approval to write new business was received on 21 November 2007 and the new company began trading on 30 November 2007.
On signing the agreement, the Group acquired 5% of the share capital of Cajamurcia Vida and Cajamurcia granted the Group a call option over a further 45% of the shares in this company which may be exercised in the two month period following the first anniversary of the agreement being signed. Further consideration of £69 million would be payable on exercising the option, with additional amounts of up to £187 million payable, dependent on the performance of the new company. If it does not exercise this option during this period, the Group has granted a call option over its 5% holding to Cajamurcia.
The Group paid £8 million for the initial 5% holding on completion on 6 June 2007. The Group has the power to control the financial and operating policies of Cajamurcia Vida through having the majority vote at meetings of the company's board of directors. We have therefore consolidated its results and balance sheet since that date.
The value of the agreement to distribute through Cajamurcia's branch network has been identified as a separate intangible asset with a value of £202 million, using estimated post-tax cash flows and discount rates.
As noted above, the results of Cajamurcia Vida have been included in the consolidated financial statements of the Group and have contributed £nil to the consolidated profit before tax since it began trading on 30 November 2007.
(iii) Italian transactions with Banco Popolare
During the year, the Group's Italian holding company has entered into three sets of transactions with an Italian bank, Banco Popolare Societa Cooperativa (Banco Popolare). Details of these transactions are as follows:
(a) Petunia and Banca Network
On 26 September 2007, the Group acquired a 40.62% stake in Petunia SpA (Petunia), a newly-formed investment holding company for £19 million. The Group has the majority of voting rights and management control of Petunia and so has consolidated this company as a subsidiary. The total capitalisation of the company at the completion date was £47 million, which was used to purchase a 49.75% stake in Banca Bipielle Network SpA (Bipielle Net), an Italian distribution network, from Banco Popolare. The acquired company has since been renamed Banca Network Investimenti SpA (Banca Network).
The Group does not have management control of Banca Network and so accounts for it as an investment in an associate. The total consideration was £49 million, comprising cash consideration of £46 million and contingent consideration of £3 million (representing the present value of future expected performance-related consideration). The fair value of the Group's share of Banca Network's identifiable net assets at the date of acquisition was £27 million. The residual goodwill of £22 million has been included in the carrying value of the investment in associate.
The fair value of the Group's share of Banca Network's identifiable net assets at the date of acquisition was £27 million.
The residual goodwill of £22 million has been included in the carrying value of the investment in associate.
This residual goodwill has been calculated based on the provisional fair values of the net assets and liabilities of Banca Network and may be restated in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations.
(b) Area Life
As part of the above transaction, on 26 September 2007, the Group acquired a 55% stake in Area Life International Assurance Limited (Area Life), a life assurance company based in Ireland selling exclusively to Italian residents, from Banco Popolare for £7 million.
The net assets above have been stated at their provisional fair values and may be amended in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations.
The results of Petunia, Banca Network and Area Life have been included in the consolidated financial statements of the Group with effect from 26 September 2007 and have contributed £nil to the consolidated profit before tax.
(c) Bancassurance agreement via Avipop Assicurazioni and Avipop Vita
On 14 December 2007, the Group entered a long-term bancassurance partnership in protection and non-life insurance with Banco Popolare that will further strengthen the Group's bancassurance presence in Italy and creates a new opportunity in the fast-growing protection sector.
The Group paid £184 million to secure the long-term bancassurance agreement with Banco Popolare and to acquire 50% plus one share of Avipop Assicurazioni SpA., a non-life subsidiary of the bank. Life protection business will be written in a newly-incorporated life company, Avipop Vita SpA, which will begin trading later in 2008, subject to regulatory approval. The Group currently owns all the shares in this life company but, once regulatory approval has been obtained, will reduce its holding to 50% plus one share. The Group has management control of both companies and has therefore fully consolidated them as subsidiaries.
The value of the agreement to distribute through Banco Popolare's branch network has been identified as a separate intangible asset and has been valued by an independent third party at £386 million (100% share), using estimated post-tax cash flows and discount rates. The intangible asset has been assessed as having an indefinite useful life, subject to annual tests for impairment. The residual goodwill represents the impact of recognising a deferred tax liability on the intangible asset.
The net assets as at the acquisition date are stated at their provisional values, and may be amended in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations.
The results of the Avipop companies have been included in the consolidated financial statements of the Group with effect from 14 December 2007, and have contributed £nil to the consolidated profit before tax.
(iv) Cyrte Investments
On 27 September 2007, the Group acquired an 85% stake in Cyrte Investments BV (Cyrte Investments), a Dutch fund management company, for £37 million. The net assets of Cyrte Investments at the date of acquisition were £nil, giving rise to residual goodwill of £37 million.
The residual goodwill represents the value of the company's workforce and a premium paid for the investment concepts developed in the company, based on Cyrte's expertise in the telecommunications, media and technology sectors. No material intangible assets were identified.
The net assets as at the acquisition date are stated at their provisional values, and may be amended in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations.
The results of Cyrte Investments have been included in the consolidated financial statements of the Group with effect from 27 September 2007, and have contributed £2 million to the consolidated profit before tax.
The Group has also invested £209 million in three funds, managed by Cyrte investments, giving it an ownership interest in the three funds of between 13% and 18%. These funds have been accounted for as investments in associates, as Cyrte Investments is the general partner of the funds and the Group's holding gives it significant influence on the investment committee, the management board of the funds. The Group's investment of £209 million has been included in investments in associates.
(v) Hamilton Insurance Company Limited and Hamilton Life Assurance Company Limited
On 1 November 2007, the Group completed the acquisition of Hamilton Insurance Company Limited and Hamilton Life Assurance Company Limited (the Hamilton companies) from HFC Bank Limited, a subsidiary of HSBC Finance Corporation. In addition, the Group's UK general insurance businesses signed a number of five-year agreements to underwrite creditor business for HFC Bank and some of its subsidiaries, and to provide home, protection and travel insurance products to 10.2 million of HSBC Bank's UK customers.
Included in the consideration paid and goodwill arising on the Hamilton Life acquisition is £20 million in respect of unrecognised deferred tax assets, which the Group may be able to utilise in future years but cannot recognise now.
The results of the Hamilton companies have been included in the consolidated financial statements of the Group with effect from 1 November 2007 and have contributed £1 million to the consolidated profit before tax.
(vi) Unaudited pro forma combined revenues and profit
Shown below are unaudited pro forma figures for combined revenues and profit as though the acquisition date for all business combinations effected during the year had been 1 January 2007, after giving effect to purchase accounting adjustments and the elimination of intercompany transactions. The pro forma financial information is not necessarily indicative of the combined results that would have been attained had the acquisitions taken place at 1 January 2007, nor is it necessarily indicative of future results.
| 2007 £m |
|
|---|---|
| Revenues (net earned premiums and fee income) | 31,390 |
| Profit before tax attributable to shareholders | 1,862 |
Of the above pre-tax profit, £17 million has arisen since acquisition.
(vii) Non-adjusting post-balance sheet events
(a) Acquisition of UBI Assicurazioni Vita
On 17 January 2008, the Group announced that it had reached an agreement with Unione di Banche Italiane Scpa (UBI Banca) for the acquisition of 50% plus one share in UBI Assicurazioni Vita SpA., an Italian life insurance company wholly-owned by UBI Banca, for a consideration of £49 million. Completion of the transaction is subject to certain conditions and the approval of the relevant regulatory authorities and is expected to take place in the first half of 2008.
(b) Acquisition of Swiss Life Belgium
On 21 January 2008, the Group announced that it had signed a memorandum of understanding with SNS REAAL to buy Swiss Life Belgium, a multi-line insurer, for €135 million. By combining Swiss Life Belgium with its Belgian insurance operation, managed through its Dutch subsidiary Delta Lloyd, the Group would further strengthen its position in the Belgian group life insurance market.
The transaction is conditional upon completion of SNS REAAL's acquisition of the Dutch and Belgian activities of Swiss Life Holding, which was announced on 19 November 2007. The completion of Delta Lloyd's acquisition of Swiss Life Belgium will be subject to approval from the relevant regulators and works council, and is expected to take place in the second quarter of 2008.
(c) Investment in LIG Life Insurance Co. Ltd.
On 31 January 2008, the Group announced that it would be entering the South Korea life insurance market by agreeing to acquire jointly with Woori Finance Holdings Company Ltd ("Woori") a 91.65% stake in LIG Life Insurance Co. Ltd ("LIG Life"), a South Korean life insurance company, for KRW 137.2 billion (£73 million).
After completion, the Group will hold 40.65% of LIG Life. Aviva and Woori plan to develop LIG Life's business distribution, predominantly through bancassurance via Woori's banking network and independent financial advisors.