British insurance group Aviva's unsolicited £16.8 billion ($29.5 billion) all-stock bid for Prudential could create a problem for its Indian arm if it goes through. The alliance mooted will create the UK's largest and the world's fifth largest insurance group. Under the proposed terms, Prudential shareholders will get 83 Aviva shares for every 100 shares held.
However, any merger could create a peculiar situation for Aviva in India, one of the fastest-growing markets in Asia. While Aviva holds a 26 per cent stake in its Indian joint venture with the Dabur group, Prudential holds a 26 per cent stake in ICICI Prudential Life Insurance.
Prudential rejected the bid on Saturday, March 18, saying it was not in the best interests of shareholders, but the directors of Aviva will meet this week to consider increasing the offer amount. Aviva said today that it would proceed with the offer only if the Prudential management recommends the deal.
Aviva is not expected to launch a hostile bid. According to some analysts, though, there is an outside chance for a hostile bid if it fails to convince the Prudential management.
There is also speculation that bigger rivals like AXA of France, Allianz of Germany or even American International Group could come up with rival bids. AXA and Allianz have separately denied any such moves.
Aviva is the world's sixth largest insurance group and the single largest in the UK. It offers life and general insurance, long term investment solutions and fund management services. The group had more than $510 billion in assets under management and had revenues of $57 billion from insurance premium and investment sales.
Prudential UK (different from the US-based Prudential Financial group) offers life insurance and pension management. Its subsidiary M&G Investments provides fund managements to the retail segment. The group owns online financial services provider Egg and US-based Jackson National Life Insurance. It had more than $249 billion in assets under management as at 31 December 2005.
Aviva said a merger could save 320 million pounds a year before tax and create the world's fifth-largest insurer by market capitalisation. Aviva, better known for its Norwich Union and Morley Fund Management divisions, is thought by many to be a good fit for Prudential. Aviva is stronger in the UK. and Europe, while Prudential has a larger base in the US and Asia.
Prudential, in addition to selling insurance under its own name in Britain, also owns the fund manager M&G, which has 149 billion pounds in assets under management. Incidentally M&G is the seventh-largest shareholder in Aviva. Aviva's Morley division is the eleventh-largest shareholder in Prudential.
Aviva believes that the combined group would be able to accelerate the growth of its overseas life businesses, building on the strength of the existing and complementary platforms in Asia, Continental Europe and the US.
The two firms share several institutional shareholders, including AllianceBernstein, Legal & General Investment Management, State Street Global Advisers and Scottish Widows Investment Partnership.
Potential Indian pickle
ICICI Prudential, the largest private sector life insurer, is much larger than Aviva India. Prudential also has partnered ICICI Bank in the asset management business through Prudential ICICI Mutual Fund, till recently the largest private sector mutual fund. Prudential holds a 49 per cent stake in Prudential ICICI, with ICICI Bank holding the rest.
It would be interesting to see how ICICI Bank manages its life insurance and mutual fund ventures if the Aviva-Prudential deal goes through. The other potential suitors of Prudential also have their own operations in India. Allianz has a joint venture with the Bajaj Auto group while AIG is partnering the Tata group. AXA is all set to enter the market in partnership with the Bharti group.