Aviva plc: Proposed merger of Aviva and Prudential

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Aviva plc: Proposed merger of Aviva and Prudential

Aviva confirms that, on 16 March 2006, it made a written proposal to the Board of Prudential in relation to a possible combination of the two groups (the "proposal"). The Board of Aviva believes that such a combination would create significant value for both Aviva and Prudential shareholders.

Aviva is only prepared to proceed with the proposal on a recommended basis. However, Prudential has rejected the proposal and has informed the Board of Aviva that it is not prepared to enter into discussions.
This announcement enables both Prudential’s and Aviva’s shareholders to assess the proposal on an informed basis.

Summary of proposal

• An all-share merger of the two groups
• A merger ratio of 82 new Aviva Shares for every 100 Prudential Shares held
• The merger ratio represents a 10 per cent. premium¹ for Prudential Shareholders (based on the closing share prices of Aviva and Prudential on 16 March 2006, the date on which the proposal was made)
• An implied value to Prudential Shareholders of 708 pence per Prudential Share², including Prudential’s proposed final dividend for 2005 which Prudential Shareholders will be entitled to retain, based on the closing share prices on 17 March 2006
• An implied pro forma 2005 dividend uplift of 37 per cent. for Prudential Shareholders³
• The opportunity for both sets of shareholders to participate in the significant value creation expected to arise from the combination of Prudential and Aviva
• Estimated cost savings of approximately Ł320 million per annum before tax, attributable to shareholders
• A balanced new board and management team drawn from both organisations, with Richard Harvey as the Chief Executive

Strategic rationale and benefits of the combination

• Establish a leading global insurer. The combined group would be a leading global insurer with a pro forma market capitalisation of approximately Ł36 billion and premium income of approximately Ł40 billion.
• Diversified geographic presence. The combined group would have strong market positions in the UK, Continental Europe, Asia and the US with the management breadth and financial strength to expand and invest for growth.
• Opportunities for growth and revenue benefits. Revenue synergies and organic growth opportunities would be expected to arise across businesses and markets through the complementary expertise and market positions of Prudential and Aviva.
• Balanced mix of earnings. The cash generative earnings of the general insurance business and the enhanced asset management operations of the combined group would complement the growth demands of the combined life businesses.
• Capital and cash flow strength. The combined group would have the capital and cash flow, supported by cost saving opportunities, to accelerate the growth and development plans of the respective organisations, as well as supporting the increased total dividend.
• Enhanced margins and returns. The synergies and economies of scale arising from the combination are expected to provide significant opportunities for capital efficiencies, improved margins and enhanced returns on capital.

Richard Harvey, Aviva's Group Chief Executive said today:

“The combination of Prudential and Aviva has a compelling strategic, financial and operational logic. This is a real opportunity to create a leading player in the global savings, investments and insurance market. The group would have significant presence and growth opportunities in Europe, Asia and the US. This is a value-creating proposition for the shareholders of both companies.”

This summary should be read in conjunction with the full text of the accompanying announcement which contains further information about the terms and pre-condition to the implementation of the proposal. The proposal does not constitute a firm intention to make an offer and there can be no certainty that any offer will be made even if the pre-condition to the proposal is satisfied.

The sources of information and bases of calculation of certain financial and other information contained in this announcement are set out in Appendix 1 of the accompanying announcement. Certain defined terms used in this announcement are set out in Appendix 2 of the accompanying announcement.

Enquiries:

Aviva plc

Richard Harvey, Group Chief Executive +44 (0)20 7662 2286
Andrew Moss, Group Finance Director +44 (0)20 7662 2679

Analysts and investors
Charles Barrows, Investor Relations Director +44 (0)20 7662 8115

Media
Hayley Stimpson, Director of External Affairs +44 (0)20 7662 7544
Rob Bailhache, Financial Dynamics +44 (0)20 7269 7200

Morgan Stanley +44 (0)20 7425 8000
Caroline Silver
Jason Windsor

JPMorgan Cazenove +44 (0)20 7588 2828
Tim Wise
Conor Hillery

Notes:

1. Based on Aviva’s and Prudential’s closing ordinary share prices of 827 pence and 627.5 pence respectively on 16 March 2006. The Prudential Share price has been adjusted for the proposed final dividend for 2005 of 11.02 pence which, under the proposal, would be retained by the Prudential Shareholders.
2. Based on the merger ratio, Aviva’s closing ordinary share price of 850.5 pence on 17 March 2006 and Prudential’s proposed final dividend for 2005 of 11.02 pence.
3. On a pro forma 2005 basis, assuming a merger ratio of 82 new Aviva Shares for every 100 Prudential Shares, Aviva’s proposed full year dividend for 2005 of 27.27 pence and Prudential’s proposed full year dividend for 2005 of 16.32 pence.

Download full announcement PDF (124kb)

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Disclaimer notice

THE INFORMATION CONTAINED IN THIS PORTION OF THE WEBSITE IS NOT INTENDED FOR ANYONE IN THE UNITED STATES, AUSTRALIA, CANADA, OR JAPAN.

The proposed merger of Aviva plc ("Aviva") and Prudential plc ("Prudential") (the "proposed merger")

NOTE: ELECTRONIC VERSIONS OF CERTAIN ANNOUNCEMENTS AND INFORMATION RELATING TO THE PROPOSED MERGER ARE BEING MADE AVAILABLE ON THIS WEBSITE BY AVIVA IN GOOD FAITH AND FOR INFORMATION PURPOSES ONLY.

Access to information relating to the proposed merger

Please read this notice carefully - it applies to all persons who view this part of the website and, depending upon who you are and where you live, it may affect your rights. This part of the site contains information on the proposed merger. Please note that the disclaimer set out below may be altered or updated from time to time. You should read it in full each time you visit this part of the website.

For regulatory reasons, we have to ensure that you are aware of the appropriate regulations for the country which you are in. To allow you to view information about the proposed merger, you have to read the following and then press "I agree". If you are unable to agree, you should press "I disagree" and you will not be able to view information about the proposed merger.

Overseas Persons

Viewing this information may not be lawful in certain jurisdictions. In other jurisdictions, only certain categories of person are allowed to view this information.

The proposed merger will not be implemented by any offer made, directly or indirectly, in, into or from, or by the use of mails or any means of instrumentality (including, without limitation, telephonically or electronically) of interstate or foreign commerce of, or any facility of a national, state or other securities exchange of, nor will it be made in, into or from the US, Australia, Canada or Japan or any other country in which the proposed merger may not be made, other than in accordance with the provisions of applicable securities laws or pursuant to an available exemption from such requirements. Accordingly, copies of any information on this part of the website are not being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in, into or from the US, Australia, Canada or Japan and persons accessing this website (including custodians, nominees and trustees) must not mail or otherwise forward, distribute or send in any information available on this part of the website, into or from the US, Australia, Canada or Japan.

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The document(s) relating to the proposed merger on this website do not constitute an offer for sale of any securities or an offer or an invitation to purchase any securities. In particular, the document(s) on this website do not constitute an offer of securities for sale in the US and the new Aviva shares referred to in the documents have not been, and will not be, registered under the US Securities Act of 1933 or under the securities laws of any state, district or other jurisdiction of the US, Australia, Canada or Japan and no regulatory clearance in respect of the new Aviva shares has been, or will be, applied for in any jurisdiction other than the UK. Accordingly, absent registration or unless an exemption is applicable under the US Securities Act of 1933 or other relevant securities laws is applicable, the new Aviva shares are not being, and may not be, offered, sold, resold, delivered or distributed, directly or indirectly, in or into the US, Australia, Canada or Japan or to, or for the account or benefit of, any US person or any person resident in Australia, Canada or Japan.

The availability of any offer implementing the proposed merger to persons not resident in the United Kingdom may be affected by the laws of the relevant jurisdictions in which they are located. Persons who are not resident in the United Kingdom should inform themselves of, and observe, any applicable requirements.

Forward-looking Statements

The documents relating to the proposed merger contain forward-looking statements. All statements regarding the future financial and operating results, benefits and synergies of the transaction, future opportunities for the combined group and any other statements about Aviva or Prudential managements’ future expectations, beliefs, goals, plans or prospects constitute forward looking statements. Any statements that are not statements of historical fact should also be considered to be forward looking statements. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward looking statements, including: the ability to consummate the transaction, the ability of the combined group to successfully integrate the businesses of Aviva and Prudential and their respective operations and employees; the ability to realise anticipated synergies and cost savings and Aviva disclaims any intention or obligation to update any forward looking statements as a result of developments occurring after the date of the relevant document.

Basis of access to information relating to the proposed merger

Access to the electronic version of any documents relating to the proposed merger is being made available on this website by Aviva in good faith and for information purposes only. Any person seeking access to this website represents and warrants to Aviva that they are doing so for information purposes only. Making the information on the proposed merger available in electronic format does not constitute an offer or an invitation to purchase or sell any securities or the solicitation of any vote or approval in any jurisdiction.

Prudential shareholders should seek advice from an independent financial adviser as to the suitability of any action for the individual concerned. Any shareholder action required in connection with the proposed merger will only be set out in documents (if any) sent to or made available to Prudential shareholders by Aviva and any decision made by such shareholders should be made solely and only on the basis of information provided in those documents.

Morgan Stanley & Co. Limited is acting for Aviva and no one else in connection with the proposed merger and will not be responsible to anyone other than Aviva for providing the protections afforded to clients of Morgan Stanley & Co. Limited nor for giving advice in relation to the proposed merger.

JPMorgan Cazenove Limited is acting for Aviva and no one else in connection with the proposed merger and will not be responsible to anyone other than Aviva for providing the protections afforded to clients of JPMorgan Cazenove Limited nor for giving advice in relation to the proposed merger.

Responsibility

Except as described below, the Directors of Aviva accept responsibility for the information contained on this part of the website save that the only responsibility accepted by the directors of Aviva in relation to any information relating to Prudential, its subsidiary undertakings and the directors of Prudential and/or any such subsidiary undertakings, is for the correctness and fairness of its reproduction or presentation. Subject as aforesaid, to the best of the knowledge and belief of the Directors of Aviva (who have taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and does not omit anything likely to affect the import of such information.

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