Aviva shareholders press for talks on RSA's £5bn approach

AVIVA'S board was last night under pressure to open talks with RSA which has proposed a £5 billion acquisition of its general insurance business.

Shares in Aviva, formerly Norwich Union, leapt 5.5 per cent on Friday after news of the approach emerged.

Aviva rejected the offer, but shareholders in the company are now agitating for talks tobegin. One top-ten shareholder told Scotland on Sunday yesterday: "We believe that there would be synergies in a deal of this nature."

Investors and analysts are challenging Aviva's rejection of the offer on the grounds that it would mean dismantling its composite model of life and general insurance.

"They say it serves them well but Standard Life and Legal & General and others manage quite well without general insurance," said one source. "One or two shareholders are now saying this looks to be a sensible offer and would give Aviva a chance to focus on life insurance and give the shares a re-rating."

RSA is believed to have made its offer through a letter from chairman John Napier. There was no stock exchange announcement about the approach from either side as it was for a part rather than the whole of the company.

Nevertheless, a deal would represent a substantial consolidation in the sector.

Aviva is the UK's market leader in general insurance with an estimated 13 per cent market share.

It employs 2,500 in Scotland, including 1,500 in Perth at the former offices of General Accident, specialising in household claims.

RSA, formerly known as Royal & Sun Alliance, has a 6.6 per cent share and is number two in commercial property insurance and number four in household and motor insurance. It is also strong in pet insurance.

While the offer to Aviva was made several weeks ago, investors believe there is logic in bringing the two divisions together and are pressing for talks.

The price being suggested is ten times the operating profit of Aviva's general insurance arm and synergies could be substantial by removing duplication in shared territories such as Britain, Canada and Ireland.

But analysts also see difficulties in pulling off a deal. It would mean RSA raising more than its market capitalisation which last night stood at 4.4bn and would break its normal strategy of making bolt-on acquisitions. It has made more than 30 in the last six years and seven this year alone.

A deal on this scale may prove a tough sell to its own shareholders who it would have to tap in a rights issue.

But if it could pull it off it would more than double the size of its business. It is thought to have held talks with the regulators to ensure that any deal would not be stopped on competition grounds. It would leave it with about 20 per cent of the general insurance market in any one country, but this is thought to be within guidelines.

Aviva shares closed up 20.1p or 5.5 per cent at 387.5p, while RSA was down 1.1p at 127.4p.