13th Jul 2006 07:01
Aviva PLC13 July 2006 News release Not for release, publication or distribution, in whole or in part, in or intothe United States, Canada, Australia or Japan. 13 July 2006 AVIVA ACQUIRES AMERUS, LAUNCHES £900 MILLION EQUITY PLACING AND ANNOUNCES STRONG TRADING FOR FIRST HALF Aviva plc ("Aviva"), the world's fifth(1) largest insurance and investmentgroup, today announces that it has agreed to acquire AmerUs Group Co. ("AmerUs")in a transaction recommended by the Board of AmerUs, for approximately $2.9billion(2) (£1.6 billion) in cash, financed by a £900 million equity placing,internal resources and external debt. Aviva also announces a strong trading performance for the first half of thecurrent financial year. Highlights • The acquisition of AmerUs will transform Aviva's US business,establishing a leading position in a high-growth segment of the world's largestsavings market • Aviva H1 2006 EEV operating profit will not be less than £1.65 billion(2005: £1,318 million); worldwide life and pensions sales growth is broadly inline with Q1 (up 20% at Q1 2006); interim dividend expected to be around 10%higher compared with H1 2005 • AmerUs is a leader in the high-growth US equity-indexed market, ranking#1 in sales of equity-indexed life insurance and #3 in sales of equity-indexedannuities, with $1.6 billion of revenues and $327 million of operating incomebefore tax in 2005(3) • With earnings increasing by 27% CAGR over the last 5 years and growingmargins, AmerUs fits with Aviva's strategy of targeting profitable growth in theUS, European, and Asian long-term savings markets • AmerUs will be merged with Aviva USA and the combined team will be ledby Tom Godlasky, CEO of AmerUs. The headquarters will be in Des Moines, Iowa,and the combined business will be called Aviva • Aviva will pay $69 in cash per share of AmerUs, a 10% premium to theclosing price on 6 July 2006(4), which represents 12.5x the estimated earningsper share(5),(6) of AmerUs in 2007, 1.7x the adjusted book value(7),(8) ofAmerUs (as at 31 March 2006) and 1.9x the estimated European Embedded Value7,(9) of AmerUs (as at 31 December 2006) • Aviva anticipates annual pre-tax cost savings of approximately $45million(10). Significant revenue benefits will be realised from the enhanceddistribution platform and the superior financial strength and ratings of Aviva • Aviva expects the transaction to be accretive to Group IFRS and EEVoperating earnings per share by 2007 and 20086,9, respectively, and to have anannual post-tax return on investment of over 10%10,(11) by 2009 • The acquisition will be financed partly by a £900 million underwrittenplacing of new Aviva shares, further details of which are being separatelyannounced today, and the balance from internal resources and external debt Richard Harvey, Group Chief Executive of Aviva said: "I'm pleased to announce both a strong trading update and an important strategicmove to transform our US business with the acquisition of AmerUs. "AmerUs is a well-managed, innovative and fast-growing business. Thisacquisition establishes a leadership position within a key segment of theworld's largest long-term savings market. In a single move the combination ofAmerUs' national distribution networks and the resources and expertise of Aviva,provides the platform for significant profitable growth in the US." Thomas Godlasky, Chief Executive Officer of AmerUs said: "We are looking forward to joining forces with one of the world's leadinginsurers. With the support and financial strength of Aviva, we will be able tofurther enhance the growth opportunities of our combined operations and take thenew business to the next level." Trading update for Aviva The directors of Aviva expect that, for the half-year ended 30 June 2006, EEVoperating profit before tax will be not less than £1.65 billion (2005: £1,318million) and IFRS operating profit before tax will be not less than £1.35billion (2005: £943 million). Aviva's life and pensions new business sales growth and margins are expected tobe broadly in line with those achieved for the first quarter of 2006. Avivareported life and pensions new business sales up 20% to £6,788 million on aPVNBP basis with margins of 3.5%, in the first quarter of 2006. Aviva's general insurance operations are expected to deliver a combinedoperating ratio ("COR") below 93%, ahead of its stated target of 98%, andreflects favourable weather related claims experience in the UK whichcontributed an estimated £125 million to the underwriting performance. Avivareported a COR of 95% for the half-year ended 30 June 2005. The 2006 interim dividend will be announced at the same time as the half yearresults and will be an increase of around 10% compared to the 2005 interimdividend. Aviva will disclose its results for the half-year ended 30 June 2006 in full on9 August 2006. Trading update for AmerUs AmerUs today announced its second quarter sales results for 2006: "The company reported its annuity sales were $625.7 million, up 21 percent overfirst quarter of 2006. Sales of life insurance products were $33.3 million, up12 percent over first quarter of 2006. The company also reported that, while it is still working to finalize secondquarter earnings results, it believes adjusted net operating income results willbe in line with First Call mean estimates." NEWSWIRES: There will be a conference call today for wire services at 07:45 hrs(BST) on +44 (0)20 7162 0125 Quote: Aviva, Richard Harvey ANALYSTS: A conference call with investors and analysts will take place at 08:30 hrs (BST). The dial-in number is 020 7162 0025 for participants in theUnited Kingdom and +44 (0)20 7162 0025 for international participants. Aremote replay will be available for 15 days from 13 July 2006 until midnight on28 July 2006 on +44 (0)20 7031 4064. The access code for the replay is 712652.A slide presentation and a replay of the conference call will also be accessibleon the Aviva Group website www.aviva.com later today. Strategic rationale The acquisition of AmerUs establishes a leading presence for Aviva in selectedhigh-growth segments of the US retirement and savings markets, providing anexcellent fit with Aviva's strategy. Aviva will gain a leading position in thefast growing equity-indexed annuity market, a core US tax-deferred savingsproduct, which currently represents only 13% of the individual annuity market.In a single, financially attractive move, Aviva's US presence will expandfour-fold and will represent 9% of Aviva Group's life and pensions PVNBP in2005, on a pro forma basis, providing further geographical diversification. Positioned for growth in the United States Aviva considers the US retirement and savings market to be strategicallyattractive. With an estimated $13 trillion of retirement assets, the US isexpected to continue to be the single largest savings market over the nextdecade, representing more absolute growth in life and pension products than anyother region of the world. Driving this growth is the expected retirement ofapproximately 77 million "Baby Boomers". These favourable demographic trendshave already contributed to increased market sales of equity-indexed annuitiesfrom just over $5 billion in 2000 to $27 billion in 2005, representing acompound annual growth rate of 39%. As a result of this transaction, thecombined business will be well positioned to benefit from continued growth. Delivering profitable growth As a leading provider of equity-indexed life and annuity products to this marketsegment in the United States, AmerUs has an enviable track record of sustainedgrowth, operating from an efficient and scalable platform. Net income hasincreased from $72.9 million in 2001 to $188.8 million in 2005, representing acompound annual growth rate of 27%. AmerUs' business model is capital efficientwith short product payback periods, and attractive new business profitability,which delivered an unlevered IRR of 12% for annuities and 14% for life productsales in 2005, respectively(12). Enhanced distribution and financial strength to accelerate growth The combination of Aviva and AmerUs is expected to offer significant revenueopportunities. The new company will benefit from significantly broaderdistribution. Aviva USA currently distributes its products via a network of5,500 independent agents, specialist brokers and bank distribution agreements.AmerUs sells its products through a broad-based distribution system withnational scale. Proprietary distribution represented 83% of its annuity sales in2005. Life products are marketed through diversified channels. Aviva believesthat there is a compelling case for the new company to be rated A+ by A.M. Best,in line with Aviva USA's current A.M Best rating, which will improve access toadditional distribution. Management and organisation The new combined organisation will be led by Tom Godlasky, current AmerUs CEO,with senior management drawn from AmerUs and Aviva USA. The management team forthe new organisation has proven industry expertise and a strong track record.The business will be headquartered in Des Moines, Iowa, the current headquartersof AmerUs. The combined business will be called Aviva. Financial impact Aviva and AmerUs have entered into a definitive merger agreement which offersAmerUs shareholders $69 per share in cash. This values AmerUs at approximately$2.9 billion2 (£1.6 billion), and represents a premium of 10% to its closingprice on 6 July 20064. The purchase price represents 12.5x the estimated earnings per share5,6 ofAmerUs in 2007 and 1.7x the adjusted book value7,8 of AmerUs as at 31 March 2006(both stated on a US GAAP basis) and 1.9x estimated European Embedded Value7,9as of 31 December 2006. The merger of AmerUs with Aviva USA is expected to generate annual cost savingsof $45 million10 before tax by 2008. These savings will arise from theelimination of duplicate operations and reduced corporate overhead. Integrationcosts are expected to be approximately $50 million before tax. Aviva expects the acquisition to be accretive to IFRS and EEV operating earningsper share by 2007 and 20086,9, respectively, including synergies. The post-taxreturn on investment is anticipated to be over 10%10,11 by 2009, based on EEVoperating earnings after tax including synergies. Financing of the acquisition Cash consideration for the entire share capital of AmerUs is approximately $2.9billion2, and in addition Aviva will assume approximately $700 million of AmerUsdebt and preferred stock. Aviva intends to raise approximately £900 million($1.7 billion) from an underwritten placing of new ordinary Aviva shares. Theplacing represents approximately 45% of the aggregate transaction value andapproximately 5% of the issued ordinary share capital of Aviva. The remainingfunding requirement will be sourced from Aviva's internal resources and externaldebt. Further details of the placing have been separately announced by Avivatoday. Closing and other conditions The acquisition, which will be effected through a statutory merger in the UnitedStates, is subject to approval by a majority of AmerUs' common shareholderspresent and voting at a meeting thereof to be convened as soon as practicable,and certain conditions including customary insurance and other regulatoryconsents. The transaction is expected to close by the end of the fourth quarterof 2006. The parties have agreed that AmerUs will make a payment to Aviva of $90 millionif the merger agreement is terminated in specified circumstances, including thewithdrawal of the recommendation of the transaction by the AmerUs board, or theacceptance of a competing bid by the AmerUs board, or the rejection of thetransaction by AmerUs' shareholders following a bid for AmerUs by a third-party. ENQUIRIES: Aviva plc Andrew Moss, Group Finance Director +44 (0)20 7662 2679Philip Scott, Group Executive Director +44 (0)20 7662 2683 Analysts and investorsCharles Barrows, Investor Relations Director +44 (0)20 7662 8115 Media Hayley Stimpson, Director of External Affairs +44 (0)20 7662 7544Sue Winston, Head of Group Media Relations +44 (0)20 7662 8221Rob Bailhache, Financial Dynamics +44 (0)20 7269 7200 Financial Advisers and Brokers JPMorgan Cazenove Limited, Lazard & Co., Limited and Morgan Stanley & Co.Limited are acting as joint financial advisers to Aviva. Hoare Govett Limited,JPMorgan Cazenove Limited and Morgan Stanley & Co. International Limited areacting as joint bookrunners and joint brokers to the Placing. This announcement does not constitute an offer to sell or invitation to purchaseany securities or the solicitation of any vote for approval in any jurisdiction,nor shall there be any sale, issue or transfer of the securities referred to inthis announcement in any jurisdiction in contravention of applicable law. Thisannouncement is not an offer of securities for sale in the United States andsecurities may not be offered or sold into the United States absent registrationunder the U.S. Securities Act 1933, as amended, or an exemption therefrom.There will be no public offering of securities in the United States, the UnitedKingdom or elsewhere. This announcement contains statements about Aviva and AmerUs that are or may beforward looking statements. All statements other than statements of historicalfacts included in this announcement may be forward looking statements. Withoutlimitation, any statements preceded or followed by or that include the words "targets", "plans", "believes", "expects", "aims"," intends", "will", "may", "anticipates", "estimates", "projects", "assumes", "seeks", "predicts", "would","should", "possibly", "potential" or, words or terms of similar substance or thenegative thereof, are forward looking statements. Forward looking statementsinclude statements relating to the following: (i) future capital expenditures,expenses, revenues, earnings, synergies, economic performance, indebtedness,financial condition, dividend policy, losses and future prospects; (ii) businessand management strategies and the expansion and growth of Aviva's or AmerUs'operations and potential synergies resulting from the acquisition; and (iii) theeffects of government regulation on Aviva's or AmerUs' business. Such forward looking statements involve risks and uncertainties that couldsignificantly affect expected results and are based on certain key assumptions.Many factors could cause actual results to differ materially from thoseprojected or implied in any forward looking statements. Due to suchuncertainties and risks, readers are cautioned not to place undue reliance onsuch forward looking statements, which speak only as of the date hereof. Avivadisclaims any obligation to update any forward looking or other statementscontained herein, except as required by applicable law. Appendix 1: Further Information on AmerUs Group AmerUs Group, headquartered in Des Moines, Iowa, was founded in 1896 as a mutualinsurer. It completed its initial public offering in 1997 and fullydemutualised in 2000. Its shares are traded on the New York Stock Exchange underthe ticker symbol "AMH" and its website is www.amerus.com. AmerUs has $24.7billion of total assets and $1.7 billion of shareholders' equity, as 31 March2006. AmerUs offers a range of protection and accumulation products, which in 2005contributed approximately 47% and 53% of pre-tax operating income, respectively.The company is among the 20 largest fixed life insurers and annuity providers inthe United States, and over the past several years it has increasingly focusedits operations and capitalised on the high-growth opportunities within theequity-indexed product space. AmerUs is the third largest underwriter of equity-indexed annuity products inthe United States, with a market share of approximately 9% in 2005.Equity-indexed annuities provide customers minimum guaranteed benefits fromtheir savings account and the potential for higher returns based on theperformance of an index, typically the S&P 500. Deposits for equity-indexedannuity products represented approximately 91% of AmerUs' total accumulationannuity product deposits in 2005, and have grown from $1.3 billion in 2003 to$2.4 billion in 2005 at a compound annual growth rate of 35%. AmerUs is the leading underwriter of equity-indexed life insurance in the UnitedStates, with a market share of approximately 50% in 2005. Equity-indexed lifeinsurance provides flexible protection and savings benefits. As withequity-indexed annuities, customers have the potential for higher returns fromtheir savings fund based on the performance of an index. Sales of equity-indexedlife products represented approximately 80% of AmerUs' total protection productsales in 2005, and have grown from $51.6 million in 2003 to $94.1 million in2005, a compound annual growth rate of 35%. Biography of Thomas Godlasky, Chief Executive Officer of AmerUs Tom Godlasky is Chairman, President, Chief Executive Officer of AmerUs Group.Mr. Godlasky joined AmerUs Group in 1995, and was appointed to the board and theposition of president and chief operating officer of AmerUs Group in November2003. Mr. Godlasky received a bachelor of science degree in urban and regionalplanning from Indiana University of Pennsylvania and holds a master's degree inpublic administration from the University of Pittsburgh. He is a graduate ofHarvard Business School's Advanced Management Program and is a CharteredFinancial Analyst. Financial information on a US-GAAP basis extracted from AmerUs' 31 December 200510-K report (audited) and 31 March 2006 10-Q report (audited) is provided below. Selected Financial Data As of or for the Year Ended As of or for the Three$ in millions, except share data December 31, Months Ended March 31, 2003 2004 2005 2005 2006Summary Income Statement:Total revenues 1,653.5 1,590.1 1,615.2 353.9 470.4Benefits and expenses 1,384.1 1,329.8 1,303.5 282.9 340.2Income from continuing operations 269.4 260.3 311.7 71.0 130.2Net income from cont. operations 160.6 189.2 191.2 61.5 78.2available to common shareholders Net income from continuingoperations available to commonshareholders per common share:Basic 4.10 4.81 4.84 1.55 2.02Diluted 4.05 4.60 4.43 1.43 1.86 Dividends per common share 0.40 0.40 0.40 NM NM Summary Balance Sheet:Total invested assets 17,984 19,186 20,037 19,153 19,773Total assets 21,584 23,171 24,830 23,470 24,725Notes payable 622 571 556 571 556Total liabilities 20,174 21,547 23,128 21,879 23,070Total stockholders' equity 1,410 1,624 1,702 1,591 1,654 Appendix 2: Further Information on Aviva Group About Aviva Group Aviva is the world's fifth1 largest insurance group and the largest insuranceservices provider in the UK. The company is one of the leading providers of lifeand pension products in Europe and is actively growing its long-term savingsbusinesses in Asian markets, Australia and the USA. Aviva's main activities arelong-term savings, fund management and general insurance, with premium incomeand investment sales from continuing operations of £35 billion and £317 billionof assets under management as at 31 December 2005. Aviva has approximately59,000 employees serving 30 million customers worldwide. About Aviva USA Aviva USA is a niche player in the US life and savings market. Aviva USAprovides traditional, universal and term life products, as well as a range ofannuities, including equity-indexed annuities, structured settlements and wealthtransfer products. The company is headquartered in Boston, MA, has over $6.5billion as of June 30, 2006 in assets under management and approximately 400employees. It distributes via a network of 5,500 independent agents andspecialist brokers and via distribution agreements with several leading banks(Washington Mutual Inc., M&T Bank Corporation, and HSBC plc). It has a stronggrowth track record with new business premiums growing by a compounded annualgrowth rate of 18% from 2000 to 2005 on a PVNBP basis. END NOTES -------------------------- (1) Based on worldwide gross written premiums in 2005. (2) Based on fully diluted share count of 42.7 million, as of 7 July 2006.Assumes treasury method for PRIDES settlement. (3) US GAAP. Pre-tax operating income represents total revenues less benefitsand operating expenses, including $22.6 million of eliminations. (4) Over the closing price of an AmerUs share of $62.51 on 6 July 2006, the daybefore Aviva confirmed it was in discussions with AmerUs. (5) Based on mean Thomson Financial earnings per share estimate of $5.52 forfiscal year ending 31 December 2007; as of 6 July 2006. (6) Save for the statements relating to the trading update for Aviva for thefirst six months of 2006, which include a profit estimate in relation to thatperiod, nothing in this announcement should be construed as a profit forecast orbe interpreted to mean that Aviva's future earnings per share, or those of thecombined group, will necessarily match or exceed the historical publishedearnings of Aviva and/or AmerUs. (7) Based on fully diluted share count as of 7 July 2006 of 44.8 millionassuming gross method for PRIDES, and calculated pre transaction costs and othercosts related to change of control. (8) Book value based on US GAAP, adjusted for other comprehensive income andpreferred stock. (9) The statements that the acquisition is expected to be accretive to IFRS andEEV operating earnings per share by 2007 and 2008, respectively, relate tofuture actions and circumstances, which, by their nature, involve risks,uncertainties and other factors. These statements do not constitute a profitforecast and should not be interpreted to mean that earnings for that year orany subsequent financial period would necessarily match or be greater than thosefor any preceding financial period. AmerUs does not provide EEV or IFRSfinancial information, therefore all references to EEV figures and impact on EEVand IFRS operating earnings are based on Aviva management estimates. (10) The expected cost savings have been calculated on the basis of the existingcost and operating structures of the Aviva and AmerUs groups. These statementsof estimated cost savings and one-off costs for achieving them relate to futureactions and circumstances which, by their nature, involve risks, uncertaintiesand other factors. Because of this, the cost savings referred to may not beachieved, or those achieved could be materially different from those estimated.This statement is not intended to be a profit forecast and should not beinterpreted to mean that the earnings per share in 2006 or in any subsequentfinancial period, would necessarily match or be greater than those for therelevant preceding financial period. (11) The basis for return on investment includes all integration and other costsrelated to change of control. (12) Allowing for capital at 325% of the NAIC Company Action Level risk-basedcapital requirement. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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