Cevian builds stake in Aviva to press for price cuts and £5bn payout

Europe’s largest activist investor Cevian has constructed a 5 per cent stake in Aviva and is urgent the FTSE 100 insurer to make deeper price cuts and return £5bn to shareholders.

“Aviva has been poorly managed for a few years, and its high-quality core companies have been held again by excessive prices and a collection of dangerous strategic choices,” mentioned Christer Gardell, Cevian’s co-founder.

Shares in Aviva rose 3.3 per cent to £4.24 after Cevian launched an announcement on Tuesday morning.

Fairly than urging a change of management on the high of the London-listed group, Cevian is pushing chief govt Amanda Blanc to construct on the collection of disposals she has introduced since taking up almost a year ago.

Aviva has agreed over the previous 12 months to sell eight non-core companies, elevating virtually £8bn, in an try and refocus on the British, Irish and Canadian markets. The worldwide ambitions pursued by its earlier chief executives had been criticised by some analysts as unfocused and leaving the group with too large a price base.

The corporate “has the potential to change into a centered and well-capitalised market chief that produces worthwhile progress, generates vital money, and is very appreciated within the fairness markets”, mentioned Gardell.

Cevian, which manages greater than $16bn on behalf of about 350 pension funds, endowments and different world buyers, began constructing its Aviva stake early this 12 months, in keeping with an individual acquainted with the matter. With a 4.95 per cent holding, the Swedish group is now Aviva’s second-largest shareholder, after BlackRock.

Aviva has promised substantial returns and value reductions as central planks of its strategy shift beneath Blanc, who has informed buyers that her mantra is to maneuver rapidly.

Nonetheless, Cevian desires a selected return of £5bn in dividends or buybacks of capital that the insurer has in extra of regulatory necessities. The activist fund additionally believes that the cost-cutting can go additional, calling for reductions of greater than £500m from Aviva’s annual price base by 2023, in contrast with the administration’s goal of £300m. Additionally it is pushing for a leaner administration construction, in keeping with an individual acquainted with the matter.

There have been constructive discussions between Cevian and Aviva’s administration in latest months, in keeping with folks acquainted with the matter, who added that the fund was not pushing for a board seat.

Aviva’s share value ought to climb to greater than £8 inside three years, based mostly on a greater than doubling within the full-year dividend to 45p, Cevian estimates. The insurer may additionally stand to profit if rates of interest begin to rise, the activist investor mentioned.

Aviva’s shares commerce at seven instances ahead earnings, in keeping with S&P Capital IQ knowledge, a reduction in contrast with UK rivals together with Authorized & Normal, Phoenix Group and Direct Line, which commerce at 9 instances or extra.

Aviva mentioned that it had made “vital strategic progress over the previous 11 months” and remained “sharply centered” on enhancing its efficiency.

“We often interact with buyers and welcome any ideas which transfer us in the direction of our purpose of delivering long-term shareholder worth,” it added.

Aviva isn’t the primary UK insurer focused by Cevian. The fund waged a multiyear marketing campaign towards rival RSA, which accomplished its sale to Canada’s Intact and Denmark’s Tryg final week.

Cevian, which calls itself a “constructive activist”, usually owns a stake for about 5 years and has holdings in between 10 and 15 corporations.

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