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U.K. Insurer Rejects Multibillion-dollar Offer from Rival

Source: Wall St. Journal

Posted on 13 Aug 2010

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One of the largest insurance companies in the U.K., Aviva PLC, has snubbed a multibillion-dollar offer for its general insurance operations from one of its smaller rivals, RSA Insurance Group PLC.

Aviva shares gained more than 4 percent today as investors grew hopeful that Aviva might make a deal and sell off a weaker-performing business that accounts for only 20% of its overall operations, according to Eamonn Flanagan, an analyst at Shore Capital in Liverpool.

Sources say the offer was worth at least £5 billion ($7.79 billion).

Spokespeople for Aviva and RSA declined to comment. The two companies aren't currently in any further negotiations, according to the people familiar with the matter.

But that could change if RSA coughs up a hefty-enough price. U.K.-based RSA "is doing extremely well at what they're doing at the moment, but if they had more scale, that'd be even better," Shore Capital's Mr. Flanagan said.

Such a deal, however, could also pose hurdles for RSA, which focuses on general insurance and has staged a major turnaround of its business in recent years. For one thing, RSA, whose market value is only about £4.5 billion, would have to raise a significant amount of fresh capital from the market, which could irk existing shareholders. RSA's shares fell 0.7%.

RSA's bid comes after U.K. insurer Prudential PLC failed in its attempt to take over the main Asian operations of the U.S.'s American International Group Inc. earlier this year. Prudential's shareholders balked at its $35.5 billion price tag and AIG's board declined to accept a lower price.