Aviva faces demand to return capital from activist investor Cevian

Cevian, Europe’s largest activist investor, has called on Aviva to return £5bn in excess capital to shareholders next year after building an almost 5 per cent stake in the FTSE 100 insurer.

Rather than urging a change of leadership at the top of the London-listed group, Cevian is pushing chief executive Amanda Blanc to build on the series of disposals she has announced since taking over almost a year ago.

Aviva has agreed over the past year to sell eight non-core businesses, raising almost £8bn, in an attempt to refocus on the UK, Irish and Canadian markets. The global ambitions pursued by previous chief executives were criticised by some analysts as unfocused and leaving the group with too big a cost base. 

“Aviva has been poorly managed for many years, and its high-quality core businesses have been held back by high costs and a series of bad strategic decisions,” Christer Gardell, Cevian’s co-founder, said on Tuesday. 

The company “has the potential to become a focused and well-capitalised market leader that produces profitable growth, generates significant cash, and is highly appreciated in the equity markets,” he added.

Cevian, which manages more than $16bn on behalf of about 350 pension funds, endowments and other global investors, started building its Aviva stake early this year, according to a person familiar 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 cost reductions as central planks of its strategy shift under Blanc, who has told investors that her mantra is to move quickly. 

However, Cevian believes that the cost-cutting can go further, calling for reductions of more than £500m from Aviva’s annual cost base by 2023, compared with the management’s target of £300m. It is pushing for a leaner management structure, according to a person familiar with the matter.

Aviva’s share price of just above £4 should climb to more than £8 within three years, based on a more than doubling in the full-year dividend to 45p, Cevian estimates. The insurer could also stand to benefit if interest rates start to rise, the activist fund said. 

Aviva’s shares trade at seven times forward earnings, according to Capital IQ data, a discount to UK rivals including Legal & General, Phoenix Group and Direct Line, which trade at nine times and above.

There have been constructive discussions between Cevian and Aviva’s management in recent months, according to people familiar with the matter, who added that the fund was not currently pushing for a board seat.

Aviva said that it had made “significant strategic progress over the past 11 months” and remained “sharply focused” on improving its performance.

“We regularly engage with investors and welcome any thoughts which move us towards our goal of delivering long-term shareholder value,” it added.

Aviva is not the first UK insurer targeted by Cevian. The fund waged a multiyear campaign against rival RSA, which completed its sale to Canada’s Intact and Denmark’s Tryg last week.

Cevian, which calls itself a “constructive activist”, typically owns a stake for about five years, and has holdings in between 10 and 15 companies.

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