Aviva confirms talks over £1.3bn deal to buy AmerUs

The UK insurance giant Aviva confirmed yesterday that it was in talks to buy its American rival AmerUs in a deal that could cost it at least £1.3bn, as it moved to try to put its recent failed takeover bid for Prudential behind it.

In a statement released yesterday morning, Aviva responded to days of market speculation, acknowledging it was in discussions with AmerUs but warning that a deal may still not materialise.

The group said that, if successful, it would fund the transaction through a combination of its internal resources, external debt facilities and an equity fundraising. It is thought the group has surplus capital of at least £750m but may look to raise up to £1bn via the debt and equity markets, leaving it some extra cash to fund expansion. "These discussions are consistent with Aviva's stated strategy of pursuing value-creating acquisition opportunities in key growth segments of the major global long-term savings markets," it said.

The London market reacted relatively negatively to the news yesterday, sending Aviva's shares down as much as 4.5 per cent in early trading. They eventually recovered slightly to close down 3.54 per cent at 725p.

A successful acquisition of AmerUs would give Aviva its first firm foothold in the US, where the life insurance industry is entering a boom period. Some 4 million post-war baby-boomers are reaching 50 every year in the US, and in need of retirement savings products.

AmerUs, which is based in Des Moines, Ohio, has assets of $24.7bn and a presence in all 50 of America's states.

Nevertheless, Aviva was keen to stress that the acquisition was still equivalent to only a twentieth of its market value, claiming it was more of a bolt-on acquisition than a major purchase.

Roman Cizdyn, an analyst at Oriel Securities, said it would certainly not achieve Aviva's aim of giving it a serious presence in the US. "The main question is whether this would be the end, or whether they would want to do more acquisitions in the US after," he said. "If they buy AmerUs, they'll still be a very small player in the US."

Mikir Shah, an analyst at Fox-Pitt Kelton, added that as well as AmerUs now looking relatively expensive, there was some regulatory uncertainty in the US regarding its main product line - equity-linked annuities.

Aviva has been eyeing AmerUs for several months. When rumours of an approach first surfaced in January, the UK company issued a flat denial that it was in talks with AmerUs. Two months later, the group made an approach for its largest UK rival Prudential but failed to persuade either the management or shareholders of the approach's merits.

If successful, the AmerUs deal would be Aviva's largest deal since the company was formed via the merger of CGU and Norwich Union in 2000. Last year, the company bought the vehicle service group RAC for £1.1bn.