20th Mar 2006 07:03
Aviva PLC20 March 2006 Not for release, publication or distribution, in whole or in part, in or intothe United States, Canada, Australia or Japan. 20 March 2006 Embargoed until 7.00 a.m. Proposed merger of Aviva and Prudential Aviva confirms that, on 16 March 2006, it made a written proposal to the Boardof Prudential in relation to a possible combination of the two groups (the"proposal"). The Board of Aviva believes that such a combination would createsignificant value for both Aviva and Prudential shareholders. Aviva is only prepared to proceed with the proposal on a recommended basis.However, Prudential has rejected the proposal and has informed the Board ofAviva that it is not prepared to enter into discussions. This announcement enables both Prudential's and Aviva's shareholders to assessthe proposal on an informed basis. Summary of proposal • An all-share merger of the two groups • A merger ratio of 82 new Aviva Shares for every 100 PrudentialShares held • The merger ratio represents a 10 per cent. premium1 for PrudentialShareholders (based on the closing share prices of Aviva and Prudential on 16March 2006, the date on which the proposal was made) • An implied value to Prudential Shareholders of 708 pence perPrudential Share2, including Prudential's proposed final dividend for 2005 whichPrudential Shareholders will be entitled to retain, based on the closing shareprices on 17 March 2006 • An implied pro forma 2005 dividend uplift of 37 per cent. forPrudential Shareholders3 • The opportunity for both sets of shareholders to participate in thesignificant value creation expected to arise from the combination of Prudentialand Aviva • Estimated cost savings of approximately £320 million per annumbefore tax, attributable to shareholders • A balanced new board and management team drawn from bothorganisations, with Richard Harvey as the Chief Executive Strategic rationale and benefits of the combination • Establish a leading global insurer. The combined group would be aleading global insurer with a pro forma market capitalisation of approximately£36 billion and premium income of approximately £40 billion. • Diversified geographic presence. The combined group would havestrong market positions in the UK, Continental Europe, Asia and the US with themanagement breadth and financial strength to expand and invest for growth. • Opportunities for growth and revenue benefits. Revenue synergiesand organic growth opportunities would be expected to arise across businessesand markets through the complementary expertise and market positions ofPrudential and Aviva. • Balanced mix of earnings. The cash generative earnings of thegeneral insurance business and the enhanced asset management operations of thecombined group would complement the growth demands of the combined lifebusinesses. • Capital and cash flow strength. The combined group would have thecapital and cash flow, supported by cost saving opportunities, to accelerate thegrowth and development plans of the respective organisations, as well assupporting the increased total dividend. • Enhanced margins and returns. The synergies and economies of scalearising from the combination are expected to provide significant opportunitiesfor capital efficiencies, improved margins and enhanced returns on capital. Richard Harvey, Aviva's Group Chief Executive said today: "The combination of Prudential and Aviva has a compelling strategic, financialand operational logic. This is a real opportunity to create a leading player inthe global savings, investments and insurance market. The group would havesignificant presence and growth opportunities in Europe, Asia and the US. Thisis a value-creating proposition for the shareholders of both companies." This summary should be read in conjunction with the full text of theaccompanying announcement which contains further information about the terms andpre-condition to the implementation of the proposal. The proposal does notconstitute a firm intention to make an offer and there can be no certainty thatany offer will be made even if the pre-condition to the proposal is satisfied. The sources of information and bases of calculation of certain financial andother information contained in this announcement are set out in Appendix 1 ofthe accompanying announcement. Certain defined terms used in this announcementare set out in Appendix 2 of the accompanying announcement. Enquiries: Aviva plc Richard Harvey, Group Chief Executive +44 (0)20 7662 2286Andrew Moss, Group Finance Director +44 (0)20 7662 2679 Analysts and investorsCharles Barrows, Investor Relations Director +44 (0)20 7662 8115 Media Hayley Stimpson, Director of External Affairs +44 (0)20 7662 7544Rob Bailhache, Financial Dynamics +44 (0)20 7269 7200 Morgan Stanley +44 (0)20 7425 8000Caroline SilverJason Windsor JPMorgan Cazenove +44 (0)20 7588 2828Tim WiseConor Hillery Notes: (1) Based on Aviva's and Prudential's closing ordinary share prices of 827 penceand 627.5 pence respectively on 16 March 2006. The Prudential Share price hasbeen adjusted for the proposed final dividend for 2005 of 11.02 pence which,under the proposal, would be retained by the Prudential Shareholders. 2 Based on the merger ratio, Aviva's closing ordinary share price of 850.5 penceon 17 March 2006 and Prudential's proposed final dividend for 2005 of 11.02pence. 3 On a pro forma 2005 basis, assuming a merger ratio of 82 new Aviva Shares forevery 100 Prudential Shares, Aviva's proposed full year dividend for 2005 of27.27 pence and Prudential's proposed full year dividend for 2005 of 16.32pence. Morgan Stanley is acting for Aviva and no one else in connection with theproposal and will not be responsible to anyone other than Aviva for providingthe protections afforded to clients of Morgan Stanley nor for giving advice inrelation to the proposal. JPMorgan Cazenove is acting for Aviva and no one else in connection with theproposal and will not be responsible to anyone other than Aviva for providingthe protections afforded to clients of JPMorgan Cazenove nor for giving advicein relation to the proposal. This announcement does not constitute an offer or any invitation to purchase anysecurities or the solicitation of any vote or approval in any jurisdiction. Statements in this announcement regarding the proposed transaction between Avivaand Prudential, future financial and operating results, benefits and synergiesof the transaction, future opportunities for the combined group and any otherstatements about Aviva's management's future expectations, beliefs, goals, plansor prospects constitute forward looking statements. Any statements that are notstatements of historical fact should also be considered to be forward lookingstatements. There are a number of important factors that could cause actualresults or events to differ materially from those indicated by such forwardlooking statements, including: the ability to consummate the transaction, theability of the combined group to successfully integrate the businesses of Avivaand Prudential and their respective operations and employees; the ability torealise anticipated synergies and cost savings and Aviva disclaims any intentionor obligation to update any forward looking statements as a result ofdevelopments occurring after the date of this announcement. Dealing Disclosure Requirements Under the provisions of Rule 8.3 of the City Code, if any person is, or becomes,"interested" (directly or indirectly) in 1 per cent. or more of any class of"relevant securities" of Aviva or Prudential, all "dealings" in any "relevantsecurities" of Aviva or Prudential (including by means of an option in respectof, or a derivative referenced to, any such "relevant securities") must bepublicly disclosed by no later than 3.30 p.m. (London time) on the Londonbusiness day following the date of the relevant transaction. This requirementwill continue until the date on which any offer becomes, or is declared,unconditional as to acceptances, lapses or is otherwise withdrawn or on whichthe "offer period" otherwise ends. If two or more persons act together pursuantto an agreement or understanding, whether formal or informal, to acquire an"interest" in "relevant securities" of Aviva or Prudential, they will be deemedto be a single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the City Code, all "dealings" in "relevantsecurities" of Aviva or Prudential by Aviva or Prudential, or by any of theirrespective "associates", must be disclosed by no later than 12.00 noon (Londontime) on the London business day following the date of the relevant transaction. A disclosure table, giving details of the companies in whose "relevantsecurities" "dealings" should be disclosed, and the number of such securities inissue, can be found on the Takeover Panel's website atwww.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marks are defined in the City Code, which can also be foundon the Takeover Panel's website. If you are in any doubt as to whether or notyou are required to disclose a "dealing" under Rule 8, you should consult theTakeover Panel. Nothing in this announcement should be construed as a profit forecast or beinterpreted 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 Prudential. The availability of any offer implementing the proposal, if made, to persons notresident in the United Kingdom may be affected by the laws of the relevantjurisdictions in which they are located. Neither this announcement nor the proposal constitutes an offer of securitiesfor sale in the United States or an offer to acquire or exchange securities inthe United States. No offer to acquire securities or to exchange securities forother securities has been made, or will be made, directly or indirectly, in orinto, or by use of the mails, any means or instrumentality of interstate orforeign commerce or any facilities of a national securities exchange of, theUnited States or any other country in which such offer may not be made otherthan (i) in accordance with the tender offer requirements under the U.S.Securities Exchange Act of 1934, as amended, or the securities laws of suchother country, as the case may be, or (ii) pursuant to an available exemptionfrom such requirements. The new Aviva Shares referred to in this announcement have not been registeredunder the U.S. Securities Act of 1933, as amended, and may not be offered orsold in the United States absent registration or an applicable exemption fromregistration requirements Not for release, publication or distribution, in whole or in part, in or intothe United States, Canada, Australia or Japan. 20 March 2006Embargoed until 7.00 a.m. Proposed merger of Aviva and Prudential Aviva confirms that, on 16 March 2006, it made a written proposal to the Boardof Prudential in relation to a possible combination of the two groups (the"proposal"). The Board of Aviva believes that such a combination would createsignificant value for both Aviva and Prudential shareholders. Aviva is only prepared to proceed with the proposal on a recommended basis.However, Prudential has rejected the proposal and has informed the Board ofAviva that it is not prepared to enter into discussions. This announcement enables both Prudential's and Aviva's shareholders to assessthe proposal on an informed basis. 1. Terms of the proposal The proposal is a share-for-share merger of Aviva and Prudential, on terms suchthat Prudential Shareholders would receive a premium of 10 per cent., based onthe closing prices for Prudential and Aviva Shares on 16 March 2006, the date onwhich the proposal was made to the Board of Prudential. Under the terms of the proposal, Prudential Shareholders would receive 82 newAviva Shares for every 100 Prudential Shares held. Prudential Shareholders wouldretain their entitlement to Prudential's proposed final dividend for 2005. Theimplied value of these terms, including Prudential's proposed final dividend for2005 of 11.02 pence, is 708 pence per Prudential Share, based on Aviva's closingshare price of 850.5 pence on 17 March 2006. Aviva believes that the proposed terms fairly reflect the relative valuations ofthe groups and their respective contributions to the combined group and offer asignificant premium to Prudential Shareholders. The merger would provide bothsets of shareholders with the opportunity to benefit from the growth platformand synergies created by the transaction. In addition to the premium and strategic benefits of the combination, theproposal would provide Prudential Shareholders with the opportunity to receive asubstantially higher dividend, based on Aviva's proposal that the combined groupadopts Aviva's current dividend policy. Prudential Shareholders would receive adividend uplift of approximately 37 per cent. on a pro forma 2005 basis1. 2. Rationale for the combination and strategy of the combined group The combined group The merger of Prudential and Aviva would create a powerful force in the globalinsurance industry, with strong positions across the UK, US, Asia andContinental Europe. On a pro forma basis, the combined group would haveapproximately £40 billion of premium income and a market capitalisation ofapproximately £36 billion, making it the 5th largest insurer in the world bymarket capitalisation and an industry leader by premiums. The combined group would be geographically diversified and have an attractivespread of earnings from long-term savings, asset management and non-lifeinsurance activities. The cash generative earnings of the general insurancebusiness and the enhanced asset management business would complement the growthdemands of the combined life businesses. The tables below set out the pro formasplit of EEV operating profit for the combined group: By business segment Year to By geography Year to 31 December 2005 31 December 2005Life 65% UK 42%General insurance and 29% Europe 28%healthFund management 4% North America 17%Other 2% Asia 10% Other 3%Total EEV operating profit £5,432m Total EEV operating profit £5,432mbefore tax* before tax* * Before corporate costs and unallocated interest charges in the case of Avivaand before other income and expenditure in the case of Prudential. Strategic benefits Aviva believes that the combined group would be able to accelerate the growth ofits overseas life businesses, building on the strength of the existing andcomplementary platforms in Asia, Continental Europe and the US, while pursuing adisciplined approach to profitable growth in the UK life market. Thecombination would offer significant opportunities for value creation. Inparticular: • in the UK, the combined group would be the largest life assurancebusiness, with pro forma life and pensions new business APE sales of £2.0billion and new business profits of £456 million in 2005. The proposedcombination would combine the strengths of both groups' life businesses,creating greater scale and product breadth, and would allow significantopportunities for capital efficiencies, improved margins and enhanced returns oncapital; • in UK general insurance, where Aviva has a market leading position,Prudential's distribution and customer base would help accelerate the growth ofNorwich Union Insurance and RAC with the potential to sell an expanded productoffering across a significantly enlarged customer base; • in the US, Aviva's business would be integrated into JacksonNational Life. The US market, which both groups have identified as astrategically attractive market, would remain a core part of the combinedgroup's strategy with a continued intention, and greater scope, to expand theexisting operations; • in Asia, the combination would enhance the growth potential ofPrudential's business with the benefit of a more powerful capital base andincreased operational cash flow. In addition, Aviva's bancassurance experiencewould be employed to build further distribution partnerships across the region,while the introduction of Aviva's general insurance products in Asia would allowfor significant revenue growth opportunities; and • in asset management, the combined operations would have over £550billion of assets under management, making it the estimated 6th largest fundmanager based in Europe and in the top 10 globally. M&G has both a leadingbrand and a first class reputation for investment products and performanceacross asset classes. Aviva's substantial UK asset management business, Morley,would provide strong capabilities and enhanced scale, particularly in propertyand fixed income asset classes. Integration of the UK life operations The Board of Aviva regard the complementary product and distributioncapabilities and the resulting scale and market position of the combined groupas being strong attractions of the proposal. The combined group would commit to a multi-product, multi-distribution strategy,targeting significant positions in all major product lines. Aviva proposes thatboth brands would be retained but with distinct target markets. The Prudentialbrand would be retained for the corporate market, while Norwich Union would beused as the retail brand for both life and general insurance products. Therelative strengths of the two groups in the core product areas would allow for aclear plan of integration and choice as to the retained manufacturing platform.Aviva is confident that significant cost savings could be realised whileallowing the combined group to achieve its growth targets across all areas. 3. Merger benefits The merger would provide an opportunity for significant economies of scale andcost elimination. Aviva expects that the combination with Prudential wouldgenerate annual shareholder cost savings of approximately £320 million beforetax by 20092. Integration costs for shareholders are estimated to beapproximately £480 million before tax. These amounts have been calculated by Aviva management on the basis of existingcosts, operating structures and business volumes and Aviva's proposed strategyfor the combined group. They have not been reported on at this stage by a firmof accountants and the financial advisers in accordance with the requirements ofthe City Code. Reports, including the bases of belief and sources of informationsupporting the statements and an analysis and explanation of the constituentelements of these amounts, will be published shortly. UK life and pensions, which would represent the source of approximately half ofthe estimated total shareholder cost savings, would benefit from reducedoperating expenses and the elimination of overlap in administration. In assetmanagement, savings would result from the combination of operations,rationalisation of the product range and reduced overheads, primarily in the UK. It is expected that scale efficiencies would be achievable in the US and Asia,reflecting the proposed strategy in those regions. Central expenses would bereduced through the elimination of duplication and the streamlining of generalservices and administrative costs in central functions across the combinedgroup. Aviva believes that its management has strong credentials to work withPrudential in delivering the merger benefits and ensuring a smooth integrationprocess. 4. Dividend Aviva is committed to providing shareholders with an attractive return throughdividend payments. On 2 March 2006, Aviva proposed a final dividend of 17.44pence per share bringing the full year dividend to 27.27 pence which is a 7.5per cent. increase on the previous year. As stated in its preliminary results,Aviva is committed to growing the dividend taking account of the group'sfinancial performance in a given year and the capital demands of its businesses. The combined group would adopt Aviva's existing dividend policy, paying adividend that is appropriately covered by earnings. This policy would continueto offer shareholders an attractive level of dividend growth. Under thisproposal and on a pro forma 2005 basis, Prudential Shareholders would havereceived a full year dividend of 22.36 pence per Prudential Share, a 37 percent. increase on the full year dividend of 16.32 pence per share proposed byPrudential in respect of 20051. 5. Capital and cash flow The merger would give the combined group the capital strength and cash flow,supported by cost savings, to accelerate the growth and development plans of therespective organisations as well as supporting the proposed dividend policygoing forward. During 2005, Aviva produced operational capital generation (net of financing anddividends) of £833 million and EU Groups Directive solvency capital of £1.5billion (net of increased regulatory capital required to support growth)resulting in an EU Groups Directive surplus of £3.5 billion at 31 December 2005.The combined group would have an estimated pro forma EU Groups Directive surplusof £4.3 billion. 6. Board and management The combined group would have a balanced board and senior management team, whichwould combine the talents of both organisations. Richard Harvey would be ChiefExecutive of the combined group, with the remaining board positions, bothexecutive and non-executive, drawn from the directors and management of bothorganisations. The merger would bring together two outstanding management teamswith complementary strengths and expertise and would create a group ofexceptional ability and standing. 7. Pre-condition and conditions to the proposal Implementation of the proposal would be subject to the recommendation of theBoard of Prudential. Any offer, if made, would also be subject to the terms andconditions set out in any formal offer announcement, including respectiveshareholder approvals and customary regulatory and competition consents. This announcement does not constitute a firm intention to make an offer forPrudential and, accordingly, there can be no certainty that any offerimplementing the proposal will be made, even if the pre-condition is satisfied. The written proposal was made after thorough consideration by the Board of Avivaand was put forward with sufficient detail and information to enable a fairassessment by Prudential of the merits of engaging in discussions. Thisannouncement contains the key terms of the proposal. 8. Aviva's 2005 Results On 2 March 2006, Aviva announced its preliminary results for the year ended 31December 2005. Group operating profit, on an EEV basis, was £2,904 million, up29 per cent, and net asset value per share grew to 622 pence from 511 pence. Newbusiness contribution from the life and pensions business was up 14 per cent.and the general insurance business achieved a worldwide combined operating ratioof 95 per cent, comfortably beating the 98 per cent. commitment. The full yeardividend was raised by 7.5 per cent. 9. Relevant Securities In accordance with Rule 2.10 of the City Code, Aviva confirms that as at theclose of business on 17 March 2006, being the last business day prior to thisannouncement, it had 2,396,214,806 ordinary shares of 25 pence each in issue.The International Securities Identification Number of Aviva Shares isGB0002162385. Enquiries: Aviva plc Richard Harvey, Group Chief Executive +44 (0)20 7662 2286Andrew Moss, Group Finance Director +44 (0)20 7662 2679 Analysts and investorsCharles Barrows, Investor Relations Director +44 (0)20 7662 8115 MediaHayley Stimpson, Director of External Affairs +44 (0)20 7662 7544Rob Bailhache, Financial Dynamics +44 (0)20 7269 7200 Morgan Stanley +44 (0)20 7425 8000Caroline SilverJason Windsor JPMorgan Cazenove +44 (0)20 7588 2828Tim WiseConor Hillery Notes: 1 On a pro forma 2005 basis, assuming a merger ratio of 82 new Aviva Shares forevery 100 Prudential Shares, Aviva's proposed full year dividend for 2005 of27.27 pence and Prudential's proposed full year dividend for 2005 of 16.32pence. 2 This statement should not be construed as a profit forecast or be interpretedto mean that Aviva's future earnings per share, or those of the combined group,will necessarily match or exceed the historical published earnings of Aviva and/or Prudential. Morgan Stanley is acting for Aviva and no one else in connection with theproposal and will not be responsible to anyone other than Aviva for providingthe protections afforded to clients of Morgan Stanley nor for giving advice inrelation to the proposal. JPMorgan Cazenove is acting for Aviva and no one else in connection with theproposal and will not be responsible to anyone other than Aviva for providingthe protections afforded to clients of JPMorgan Cazenove nor for giving advicein relation to the proposal. This announcement does not constitute an offer or any invitation to purchase anysecurities or the solicitation of any vote or approval in any jurisdiction. Statements in this announcement regarding the proposed transaction between Avivaand Prudential, future financial and operating results, benefits and synergiesof the transaction, future opportunities for the combined group and any otherstatements about Aviva's management's future expectations, beliefs, goals, plansor prospects constitute forward looking statements. Any statements that are notstatements of historical fact should also be considered to be forward lookingstatements. There are a number of important factors that could cause actualresults or events to differ materially from those indicated by such forwardlooking statements, including: the ability to consummate the transaction, theability of the combined group to successfully integrate the businesses of Avivaand Prudential and their respective operations and employees; the ability torealise anticipated synergies and cost savings and Aviva disclaims any intentionor obligation to update any forward looking statements as a result ofdevelopments occurring after the date of this announcement. Dealing Disclosure Requirements Under the provisions of Rule 8.3 of the City Code, if any person is, or becomes,"interested" (directly or indirectly) in 1 per cent. or more of any class of"relevant securities" of Aviva or Prudential, all "dealings" in any "relevantsecurities" of Aviva or Prudential (including by means of an option in respectof, or a derivative referenced to, any such "relevant securities") must bepublicly disclosed by no later than 3.30 p.m. (London time) on the Londonbusiness day following the date of the relevant transaction. This requirementwill continue until the date on which any offer becomes, or is declared,unconditional as to acceptances, lapses or is otherwise withdrawn or on whichthe "offer period" otherwise ends. If two or more persons act together pursuantto an agreement or understanding, whether formal or informal, to acquire an"interest" in "relevant securities" of Aviva or Prudential, they will be deemedto be a single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the City Code, all "dealings" in "relevantsecurities" of Aviva or Prudential by Aviva or Prudential, or by any of theirrespective "associates", must be disclosed by no later than 12.00 noon (Londontime) on the London business day following the date of the relevant transaction. A disclosure table, giving details of the companies in whose "relevantsecurities" "dealings" should be disclosed, and the number of such securities inissue, can be found on the Takeover Panel's website atwww.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marks are defined in the City Code, which can also be foundon the Takeover Panel's website. If you are in any doubt as to whether or notyou are required to disclose a "dealing" under Rule 8, you should consult theTakeover Panel. Nothing in this announcement should be construed as a profit forecast or beinterpreted 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 Prudential. The availability of any offer implementing the proposal, if made, to persons notresident in the United Kingdom may be affected by the laws of the relevantjurisdictions in which they are located. Neither this announcement nor the proposal constitutes an offer of securitiesfor sale in the United States or an offer to acquire or exchange securities inthe United States. No offer to acquire securities or to exchange securities forother securities has been made, or will be made, directly or indirectly, in orinto, or by use of the mails, any means or instrumentality of interstate orforeign commerce or any facilities of a national securities exchange of, theUnited States or any other country in which such offer may not be made otherthan (i) in accordance with the tender offer requirements under the U.S.Securities Exchange Act of 1934, as amended, or the securities laws of suchother country, as the case may be, or (ii) pursuant to an available exemptionfrom such requirements. The new Aviva Shares referred to in this announcement have not been registeredunder the U.S. Securities Act of 1933, as amended, and may not be offered orsold in the United States absent registration or an applicable exemption fromregistration requirements APPENDIX 1 1. Bases of calculation and sources of information 1.1 Unless otherwise stated, the financial and other informationrelating to Aviva contained in this announcement is extracted or derived withoutadjustment from the Aviva 2005 Results, analyst and investor presentationmaterials issued by Aviva in relation to the Aviva 2005 Results, the publishedannual reports and accounts for Aviva for the relevant periods and otherinformation made publicly available by Aviva. 1.2 Unless otherwise stated, the financial and other informationrelating to Prudential contained in this announcement is extracted or derivedwithout adjustment from the Prudential 2005 Results, the published annualreports and accounts for Prudential for the relevant periods and otherinformation made publicly available by Prudential. 1.3 Unless otherwise stated, the financial information relating tothe combined group contained in this announcement is based on the sum of therelevant financial information extracted without adjustment from the Aviva 2005Results and the Prudential 2005 Results. 1.4 Unless otherwise stated, the information contained in thisannouncement regarding possible merger benefits, revenue synergies, capitalefficiencies, pre-tax cost savings, economies of scale and integration costsresulting from the proposal is based on Aviva management estimates andcalculations and, in the case of Prudential, is based upon publicly availableinformation. 1.5 Values stated throughout this announcement have been rounded tothe nearest whole number and are given to the stated number of decimal places. 1.6 Share price information used throughout this announcement has,unless otherwise stated, been sourced from the London Stock Exchange DailyOfficial List closing prices in the case of Aviva and Prudential, and in thecase of other companies, from Bloomberg closing prices as at the relevant dates. 1.7 The references to a proposed merger representing a dividenduplift of approximately 37 per cent. for Prudential Shareholders is based onapplying the merger ratio of 0.82 to the Aviva proposed full year dividend of27.27 pence for the year ended 31 December 2005, resulting in a notionaldividend of 22.36 pence per Prudential Share. This represents a 37 per cent.premium to the proposed actual full year Prudential dividend of 16.32 pence pershare for the year ended 31 December 2005. 1.8 The reference to the pro forma market capitalisation of thecombined group being approximately £36 billion is based on the sum of (i) animplied market capitalisation for Aviva of £20,380 million (calculated byapplying a figure of 2,396,214,806 Aviva Shares in issue at 17 March 2006 to theclosing share price of 850.5 pence per Aviva Share as at the close of businesson 17 March 2005), and (ii) an implied market capitalisation for Prudential of£16,001million (calculated by applying the figure of 2,420,783,534 PrudentialShares in issue as at 16 March 2006 (sourced from Prudential's website as atsuch date) to the closing share price of 660.98 pence per Prudential Share (onan ex dividend basis) as at the close of business on 17 March 2005). 1.9 The reference to the combined group being the fifth largestinsurer in the world by market capitalisation is based on the pro forma marketcapitalisations (in each case, calculated by applying the issued share capitalas at 31 December 2005 (other than in the case of Aviva and Prudential, wherethe issued share capital as at 17 March 2006 was applied) to the closing shareprice sourced from Bloomberg as at 17 March 2006) for the following peer group,representing the largest global insurance industry participants: Aviva,Prudential, American International Group, Inc., ING Groep N.V., AXA S.A.,Allianz AG, Manulife Financial Corporation and Assicurazioni Generali S.p.A. 1.10 The data for the tables showing EEV operating profit on a pro formabasis both by business segment and by geographical split is derived from (i) inthe case of Aviva, the Aviva 2005 Results (excluding corporate costs andunallocated interest charges), (ii) in the case of Prudential, the Prudential2005 Results (excluding other income and expenditure), and (iii) in each case,is presented on an operating pre-tax basis and only includes continuingoperations for both Aviva and Prudential. 1.11 The statement that the combined asset management operations of theAviva and Prudential would make the combined group the estimated 6th largestfund manager based in Europe and in the top 10 globally is based on a reportprepared by P&I/Watson Wyatt dated 5 September 2005 entitled "Special Report:World's largest managers" and assumes the combined stated total assets of Avivaand Prudential. APPENDIX 2 2. definitions 2.1 The following definitions apply throughout this announcementunless the context otherwise requires: "Aviva" means Aviva PLC; "Aviva Shares" means the ordinary shares of 25 pence each in the capital ofAviva; "Aviva's 2005 Results" means the preliminary results announcement for the yearended 31 December 2005 issued by Aviva on 2 March 2006; "APE" means annualised premium equivalent; "City Code" or "Code" means the City Code on Takeovers and Mergers; "combined group" means the combined Aviva group of companies and Prudentialgroup of companies following the implementation of the proposal; "EEV" means European Embedded Value; "EU Groups Directive" means Directive 2002/87/EC of the European Parliament andof the Council; "JPMorgan Cazenove" means JPMorgan Cazenove Limited; "Morgan Stanley" means Morgan Stanley & Co. Limited; "Takeover Panel" means the Panel on Takeovers and Mergers; "proposal" means the proposed combination of Aviva and Prudential; "Prudential" means Prudential plc; "Prudential Shareholders" means holders of Prudential Shares; "Prudential Shares" means the ordinary shares of 5 pence each in the capital ofPrudential; "Prudential 2005 Results" means the preliminary results announcement for theyear ended 31 December 2005 issued by Prudential on 16 March 2006; and "RAC" means RAC plc.; and "United States" or "US" means the United States of America (including the statesof the United States and the District of Columbia), its possessions andterritories and all areas subject to its jurisdiction. - ends - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
AvivaPrudential