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Insurance industry

Aviva Agrees to Buy AmerUs for $2.9bn Amid Concerns Over Premium Price

Strategic Insights

— 2 min read

Aviva, the UK's largest insurance company, has agreed to buy US insurer AmerUs for $2.9bn (£1.6bn) despite some unease in the City over the premium price paid for the company. The deal is expected to boost Aviva's earnings in 2007 and improve its embedded value by 2008. AmerUs has a strong presence in the US retirement market, providing indexed annuities that provide a retirement income linked to an index, typically equities. The purchase is seen as a strategic move to tap into the growing US retirement market, which is expected to surge ahead as the baby boom generation approaches retirement age.

Key Takeaways:

  • Aviva has agreed to buy US insurer AmerUs for $2.9bn (£1.6bn), a 10% premium to AmerUs's closing price on July 6.
  • The deal is expected to boost Aviva's earnings in 2007 and improve its embedded value by 2008.
  • AmerUs has a strong presence in the US retirement market, providing indexed annuities that provide a retirement income linked to an index, typically equities.
  • Group finance director Andrew Moss expects the US retirement market to surge ahead as the baby boom generation approaches retirement age.
  • Aviva will pay $69 (pounds 37) a share, a premium to AmerUs's closing price on July 6.
  • To fund the deal, Aviva placed 129m new shares at 700p each, raising pounds 900m.
  • Aviva's shares have fallen nearly 12% since the end of March, with yesterday's price down 1.4% to 691p.
  • Lehman Brothers analyst Matt Lilley said the deal price is "a very full price to pay", while ING Financial Markets analyst Kevin Ryan said it "doesn't get them all the places they want to be in the US".

Statistics:

  • $2.9bn: the price Aviva agreed to pay for AmerUs.
  • £1.6bn: the pound sterling equivalent of the purchase price.
  • 12.5 times: the multiple of AmerUs's consensus forecast 2007 earnings that Aviva paid for the company.
  • 10%: the premium Aviva paid to AmerUs's closing price on July 6.
  • $69: the price Aviva will pay for each AmerUs share.
  • Pounds 900m: the amount raised by Aviva through the placement of 129m new shares at 700p each.
  • 12%: the percentage decline in Aviva's shares since the end of March.
  • 1.4%: the decline in Aviva's shares on the day of the announcement.

Sources:

  • Aviva press release, July 7 (no date mentioned)
  • The Guardian article, January (no date mentioned)
  • Financial Times article, July 8 (no date mentioned)
  • Aviva's financial results, half-year (no date mentioned)

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