It’s time for someone else to have a go at one of the toughest jobs in European finance: deciding the future of Aviva Plc.
The UK insurer’s pick of Amanda Blanc as chief executive officer has brought a leader with the necessary sense of urgency. The appointment of a woman to such a prominent leadership role at a European financial institution should be celebrated too, not least given it’s mainly men who enter the actuarial profession.
Aviva is an incoherent global empire with life insurance, general (home and motor) insurance and asset management operations. Adjusted for currency movements, the shares have roughly halved in value in the last five years, against a European sector down 6%. They are where they were in 2012, trading on just six times expected earnings, a discount of 20% to peers Legal & General Group Plc and 45% to Prudential Plc.
Against that backdrop, this latest strategic reset thankfully sounds more substantial than what’s gone before. A former executive at Zurich Insurance Group AG and AXA SA, Blanc brings an outsider’s perspective to Aviva’s problems. Since May, there’s also been an outsider in the chairman’s seat.
There are no big-bang fixes without snags. The weak share price precludes a transformative merger or acquisition. Some investors want a breakup, potentially separating Aviva’s life and general insurance pieces. Unfortunately, that would end the capital benefits in combining the two.
But there are moves that could work over time, so Blanc’s promise of an end to “business as usual” is unlikely to be a hollow claim. Slaying sacred cows could mean gradually selling off some of Aviva’s businesses to buyers who put more value on them than what’s implied by Aviva’s lowly 11 billion-pound ($14 billion) market capitalization.
For instance, there’s no need for the company to own its own fund management unit when it can buy in those services externally.
The international operations could be cut back too. Analysts at Barclays Plc last year argued Aviva should retrench to its domestic business and use the proceeds from overseas disposals to cut debt and return cash to shareholders. The resulting payout today may be smaller than the 10 billion pounds mooted at the time. But the logic of creating a simpler, UK-focused Aviva that’s easier to manage, and easier to understand, remains.
The difficult question is why Aviva hasn’t attracted an activist investor when some of its rivals have. The likely answer is that Aviva is just next on the list.
There are worrying alternative explanations. Perhaps agitators are struggling to construct a campaign arguing that management is neglecting to take some obvious action that would boost the shares — such as the U.S./Asia split Dan Loeb sought at Prudential — because they know no such silver bullet exists. Worse, perhaps they don’t see much upside from shaking up Aviva, whereas Elliott Management Corp. reckons NN Group NV is worth almost double its share price. Blanc won’t want any activists on her back, but she’ll also want to quickly dispel the notion that Aviva isn’t worth the bother.
–With assistance from Elisa Martinuzzi.
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