9th Mar 2005 07:02
Aviva PLC09 March 2005 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, INTO OR FROM THE UNITED STATES,AUSTRALIA, CANADA OR JAPAN 9 March 2005 AVIVA BRINGS TOGETHER NORWICH UNION INSURANCE AND RAC Creating a powerful new combination in insurance and motoring services and delivering substantial value potential to Aviva and RAC Shareholders Summary The boards of Aviva and RAC announce the terms of a recommended cash and share offer, to be made by Goldman Sachs and JPMorgan Cazenove on behalf of Aviva, the world's fifth largest insurance group, for the entire issued and to be issuedshare capital of RAC, a leading UK motoring services provider, for approximately £1.1 billion. (1) The board of Aviva believes that the Acquisition will accelerate the growth and profitability of NUI, Aviva's UK general insurance business, strengthening its position as the UK's number one general insurer (with 15 million policyholders) and creating a powerful new combination in insurance and motoring services. The Acquisition will bring together RAC's powerful brand and customer base (including 6.7 million roadside assistance customers) with NUI's complementary expertise, where it already insures one in seven of all UK motor vehicles and has a leading position in private motor insurance. The board of Aviva believes that this Acquisition will generate substantial value for Aviva's and RAC's Shareholders, an improved range of products for customers and opportunities for employees in the Enlarged Aviva Group. The combination of NUI and RAC is expected to generate substantial revenue benefits and cost savings across the combined businesses with total pre-tax cost savings of at least £80 million per annum to be achieved in 2006. (2) The Acquisition is expected to be cash flow and earnings enhancing (on a modified statutory operating earnings per share basis and on an EEV operating earnings per share basis) for Aviva in 2006, being the first full year following completion of the Acquisition. It will also enhance the Aviva Group's return on capital employed from 2006. (3) (4) (5) (6) The board of RAC believes that the Offer is in the best interests of RAC Shareholders and, therefore, unanimously recommends that they accept the Offer. The price being offered by Aviva reflects the strength of RAC's businesses, its brands and the potential for future growth through the combination of RAC and NUI. The Offer - 0.7154 New Aviva Shares and 462.5p in cash for every 1 RAC Share. A Mix and Match Facility will also be available. - Based on the Closing Price of an Aviva Share on 8 March 2005, being the last Business Day before this announcement, the Offer values each RAC Share at approximately 925p and the existing issued share capital of RAC at approximately £1.1 billion (after taking account of Aviva's proposed final dividend of 16p per share for the year ended 31 December 2004, to which RAC Shareholders will not be entitled). (1) - In addition, RAC Shareholders will retain the right to receive the proposed RAC final dividend of 15.6p per share for the year ended 31 December 2004, which is expected to be paid on 5 May 2005. - Including the proposed RAC final dividend payable to RAC Shareholders, the value of the Offer represents a premium of approximately 27 per cent. over the Closing Price of a RAC Share of 742p on 7 March 2005, the last Business Day before the announcement by RAC that it had received an approach. - Including the proposed RAC final dividend payable to RAC Shareholders, the value of the Offer also represents a premium of approximately 34 per cent. over the average Closing Price of a RAC Share of 703p for the month before the announcement by RAC that it had received an approach. - Irrevocable undertakings to accept the Offer have been received from the directors of RAC who hold RAC Shares, representing approximately 0.2 per cent. of RAC's existing issued share capital. - The conditions to and certain further terms of the Offer are set out in Appendix I to the full announcement. Acquisition rationale NUI is a market leader in private motor insurance in the UK. In recent years, NUI has built on its core insurance business to provide a wide range of related services, such as roadside assistance, Pay As You DriveTM insurance and vehicle checks. This expansion has positioned NUI at the forefront of a changing market where customers now buy a broader range of products from trusted brands and where low cost, quality service and convenience have become paramount. This plays to the strengths of providers with direct distribution and well-recognised brands. Against this background, the combination of NUI and RAC, which have complementary expertise in motor insurance and motoring services, has the potential to deliver significant benefits to shareholders and customers. In particular, the Acquisition: - accelerates NUI's strategic objective to capitalise on changes in the market place and capture high value business by moving closer to customers and offering a broader range of products and services; - provides access to RAC's 2.2 million individual roadside members; - enhances NUI's partnership business by bringing new distribution partners with an additional 4.5 million corporate roadside customers, and the potential to develop RAC's current partnership relationships with a broader range of products and services; - delivers a route to realise the potential of the RAC brand in insurance and financial services - areas where RAC already has ambitious plans for expansion; - is expected to create total pre-tax cost savings across the combined businesses of at least £80 million per annum to be achieved in 2006; (2) and - is expected to be cash flow and earnings enhancing (on a modified statutory operating earnings per share basis and on an EEV operating earnings per share basis) for Aviva in 2006, being the first full year following completion of the Acquisition, and beyond. (3) (4)(5) RAC is already one of NUI's largest suppliers. It has provided the motor claims notification customer helpline, roadsiderecovery and a roadside assistance service offered as an addition to NUI motor insurance policies for ten years. RAC hasprovided underwriting of NUI's motor legal expenses cover and operated its motor legal expenses claims handling servicefor seven years. For the last two years it has provided services to NUI's own branded roadside assistance product. Synergies (2) The combination of NUI and RAC is expected to generate substantial synergies, both in terms of additional revenue benefits and cost savings. The revenue benefits are anticipated to arise from a number of areas, including: (2) - in direct insurance, selling additional products to RAC's membership base from a rate of 13 per cent. currently owning more than one product to over 50 per cent., using NUI's expertise and accelerating plans that RAC already has in place in this market; - increasing sales of financial services products such as providing car loans to RAC's customers where the RAC brand is currently considered not to have reached its full potential; - increasing roadside assistance sales to NUI's customers, supported by RAC's position as a leading provider in that market; and - realising the full potential of the RAC brand, which is one of the largest independent providers of motoring services in the UK. In 2006, total pre-tax cost savings across the combined businesses are expected to be at least £80 million per annum. The cost savings are anticipated to arise from removing duplication, supply chain savings and some offshoring of back office and administration roles. It is not intended to move customer-facing front office operations offshore. (2) The Offer Document, containing the full terms and conditions of the Offer, will be despatched to RAC Shareholders within 28 days of this announcement unless otherwise agreed by the Panel. Aviva is being advised by Goldman Sachs and JPMorgan Cazenove. RAC is being advised by Lazard. Hoare Govett is acting as broker to RAC. Quotations Commenting on the Offer, Richard Harvey, group chief executive of Aviva, said: "Norwich Union Insurance is an efficient, high return business with significant scale advantages and strong management.The combination of Norwich Union Insurance and RAC will be a powerful new force in the UK insurance and motoring services industry and has great potential to create significant value for our shareholders through bottom-line deliveryof earnings and cash generation. It enhances the strategic position of Norwich Union Insurance and accelerates its growth plans in a changing marketplace." Patrick Snowball, chief executive of NUI and group executive director, Aviva, added: "This is a transformational acquisition for Norwich Union Insurance, which consolidates our position as the UK's leading general insurer and substantially advances our motoring services to customers. There is significant potential for growth from realising the full power of the exceptionally strong RAC brand, particularly in financial services. We also expect that membership of the Aviva Group will provide benefits and opportunities for employees across the Enlarged Aviva Group. We are excited about the revenue opportunities from this combination. When it comes to their car, we will help our customers learn how to drive it, buy it, insure it and, if things go wrong, get them back on the road fast." Commenting on the Offer, Peter Smith, chairman of RAC, said: "The Board of RAC plc recommends unanimously this offer by Aviva to our shareholders. This offer represents a significant premium to our recent share price reflecting the potential of the combined companies. This offer not only represents substantial value in terms of the cash element to our shareholders but also, through receiving Aviva shares,it allows them to benefit from the future growth of the combined companies." This summary should be read in conjunction with the full text of the announcement. The sources and bases of information contained in this summary are set out in Appendix II to the full announcement and the definitions of certain expressions used in this summary are contained in Appendix III to the full announcement. - ends - Enquiries: Aviva plcAnalysts and investorsSteve Riley, investor relations director +44 (0)20 7662 8115 MediaTransaction Press Office +44 (0)20 7662 2866Hayley Stimpson, director of external affairs +44 (0)20 7662 7544Sue Winston, head of group media relations +44 (0)20 7662 8221Louise Zucchi, head of NUI media relations +44 (0)20 7662 2866 Goldman Sachs International +44 (0)20 7774 1000John RafterAndrew Dodd JPMorgan Cazenove +44 (0)20 7588 2828Tim WiseConor Hillery Financial Dynamics +44 (0)20 7269 7200Rob BailhacheNic Bennett RAC plcAnalysts and investorsNiall Addison, +44 (0)7764 624 701Group Finance and Investor Relations Manager MediaNeil Lovell, Corporate Communications Director +44 (0)7768 298 636 Lazard +44 (0)20 7187 2000Will SamuelPaul JamesonSamuel Bertrand Hoare Govett +44 (0)20 7678 8000Bob PringleCaroline Griffiths Brunswick +44 (0)20 7404 5959Anita ScottNigel Prideaux Notes to editors: "Aviva is the world's fifth-largest insurance group based on gross world-wide premiums and is the UK's largest insurer. "Aviva's principal business activities are long-term savings, fund management and general insurance, with world-wide premium income and retail investment sales from continuing operations of £33 billion and assets under management of more than £273 billion. "In 2004 Aviva's long-term savings, investment and health business premium income was £23 billion (70 per cent.) and general insurance premium income was £10 billion (30 per cent.). "NUI is the largest general insurer in the UK and produces 60 per cent. of Aviva's worldwide general insurance businessby gross written premiums. NUI's overall market share in the UK is 14 per cent. and it insures one in five households,one in seven motor vehicles and more than 800,000 businesses in the UK. "RAC has 2.2 million individual roadside members and a further 4.5 million corporate roadside customers through its corporate partnership relationships. RAC was voted the UK's number one roadside assistance provider by customers in theJD Power 2004 UK roadside assistance study. It is a leading player in the motoring services market with an exceptionally strong brand - it achieves near 100 per cent. brand awareness in the UK. RAC's business is organised around four divisions: Consumer Services; Business Solutions; Lex Vehicle Leasing; and Manufacturer Support Services. NEWSWIRES: There will be a conference call today for wire services at 8:15am (GMT) on +44 (0) 20 7365 1828 Quote: Aviva, Richard Harvey. PRESS: There will be a press conference today at 12.30pm (GMT) at Aviva, St Helen's, 1 Undershaft, London, EC3P 3DQ. Journalists wishing to attend should ring Anna Marsh, Financial Dynamics in advance on 020 7269 7229. ANALYSTS: A presentation to investors and analysts will take place at 9:30am (GMT) at St Helen's, 1 Undershaft, London, EC3P 3DQ. The investors and analysts presentation is being filmed for live webcast and can be viewed on the Aviva Group's website www.aviva.com or on www.cantos.com. In addition a replay will be available on these websites later today. There will also be a live teleconference link to the investor and analyst meeting on +44 (0) 20 7365 1854.A replay facility will be available for two weeks on +44 (0) 20 7984 7578. The pass code is 7125647# for the whole presentation including Question & Answer session or 3831407# for Question & Answer session only. The presentation slides will be available on the Aviva Group's website, www.aviva.com/presentations from 9am (GMT). The Aviva media centre at www.aviva.com/media includes images, company information and news release archive. High resolution images are also available for the media to view and download free of charge from www.vismedia.co.uk. Photographs are available from the Aviva media centre at www.aviva.com/media. Notes: 1. Based on a total of 118,807,243 RAC Shares in issue on 8 March 2005, being the last Business Day before this announcement. 2. The expected cost savings have been calculated on the basis of the existing costs and operating structures of the companies and by reference to current prices and the current regulatory environment. The statements of estimated cost savings relate to future actions and circumstances which, by their nature, involve risks, uncertainties and other factors. As a result of this, the cost savings referred to may not be achieved, or those achieved could be materially different from those estimated. 3. A statement that the Offer will be cash flow and earnings accretive in 2006 does not constitute a profit forecast and should not be interpreted to mean that earnings for 2006 or any subsequent financial period would necessarily be greater than those for any preceding financial period. 4. European Embedded Value (EEV) earnings per share is calculated by reference to Aviva's Group operating profit before amortisation of goodwill and exceptional items, net of tax, minorities and preference dividends, on a European Embedded Value basis. 5. Modified statutory operating earnings per share is calculated by reference to Aviva Group's post tax operating profit before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items attributable to equity shareholders. 6. The return on capital is calculated as the after-tax return on opening equity capital, based on operating profits before amortisation of goodwill and exceptional items. This announcement does not constitute an offer to sell or invitation to purchase any securities in any jurisdiction. The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law. The availability of the Offer, if made, to persons not resident in the United Kingdom may be affected by the laws of the relevant jurisdictions in which they are located. Persons who are not resident in the United Kingdom or who are subjectto other jurisdictions should inform themselves of, and observe, any applicable requirements. The Offer is not being made, directly or indirectly, in, into or from, or by the use of mails or any means of instrumentality (including, without limitation, telephonically or electronically) of interstate or foreign commerce of,or any facility of a national, state or other securities exchange of, nor will it be made in, into or from, the US, Australia, Canada or Japan. Accordingly, copies of this announcement and formal documentation relating to the Offer arenot being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in, into or from,the US, Australia, Canada or Japan and the Offer will not be capable of acceptance by any such use, instrumentality orfacility within the US, Australia, Canada or Japan and persons receiving this announcement or any formal documentation(including custodians, nominees and trustees) must not mail or otherwise forward, distribute or send it in, into or from, the US, Australia, Canada or Japan. Doing so may render invalid any purported acceptance of the Offer. All RAC Shareholders or other persons (including nominees, trustees or custodians) who would or otherwise intend to or may havea contractual or legal obligation to forward this announcement or any formal documentation relating to the Offer to any jurisdiction outside the United Kingdom should refrain from doing so and seek appropriate professional advice before taking any such actions. This announcement is not an offer of securities for sale in the US and the New Aviva Shares have not been, and will notbe, registered under the US Securities Act or under the securities laws of any state, district or other jurisdiction of the US, Australia, Canada or Japan and no regulatory clearance in respect of the New Aviva Shares has been, or will be, applied for in any jurisdiction other than the UK. Accordingly, unless an exemption under the US Securities Act orother relevant securities laws is applicable, the New Aviva Shares are not being, and may not be, offered, sold, resold, delivered or distributed, directly or indirectly, in or into the US, Australia, Canada or Japan or to, or for the account or benefit of, any US person or any person resident in Australia, Canada or Japan. Goldman Sachs International, which is regulated in the United Kingdom by the Financial Services Authority, is acting for Aviva and no one else in connection with the Offer and will not be responsible to anyone other than Aviva for providing the protections afforded to clients of Goldman Sachs International or for providing advice in relation to theOffer, or any matter referred to herein. JPMorgan Cazenove Limited, which is regulated in the United Kingdom by the Financial Services Authority, is acting for Aviva and no one else in connection with the Offer and will not be responsible to anyone other than Aviva for providingthe protections afforded to clients of JPMorgan Cazenove Limited or for providing advice in relation to the Offer, orany matter referred to herein. Lazard & Co., Limited, which is regulated in the United Kingdom by the Financial Services Authority, is acting for RACand no one else in connection with the Offer and will not be responsible for anyone other than RAC for providing theprotections afforded to clients of Lazard & Co., Limited or for providing advice in relation to the Offer, or any matterreferred to herein. Hoare Govett Limited, which is regulated in the United Kingdom by the Financial Services Authority, is acting for RAC and no one else in connection with the Offer and will not be responsible to anyone other than RAC for providing the protections afforded to clients of Hoare Govett Limited or for providing advice in relation to the Offer, or any matterreferred to herein. This announcement contains certain forward-looking statements. Such forward-looking statements involve risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors could cause actual results to differ materially from those projected or implied in any forward-looking statements. Dueto such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements,which speak only as of the date hereof. Aviva disclaims any obligation to update any forward-looking or other statements contained herein, except as required by applicable law. Any person who, alone or acting together with any other person(s) pursuant to an agreement or understanding (whether formal or informal) to acquire or control securities of Aviva or RAC, owns or controls, or becomes the owner or controller, directly or indirectly, of one per cent. or more of any class of securities of Aviva or RAC is generally required under the provisions of Rule 8 of the City Code to notify a Regulatory Information Service (as specified in the Listing Rules) and the Panel by not later than 12.00 noon on the Business Day following the date of the transaction of every dealing in such securities during the period to the date on which the Offer becomes or is declared unconditional as to acceptances or lapses or is otherwise withdrawn. Dealings by Aviva or RAC or by their respective associates (within the definition set out in the City Code) in any class of securities of Aviva or RAC until the end of such period must also be disclosed. Please consult your financial adviser immediately if you believe this Rule may be applicable to you. NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN 9 March 2005 Aviva plc Recommended Cash and Share Offer for RAC plc 1. Introduction The boards of Aviva and RAC today announce the terms of a recommended cash and share offer, to be made by Goldman Sachsand JPMorgan Cazenove on behalf of Aviva, to acquire the entire issued and to be issued share capital of RAC. The Offeris unanimously recommended by the board of RAC. The Offer will be 0.7154 New Aviva Shares and 462.5p in cash for every 1 RAC Share, valuing each RAC Share at approximately 925p and RAC's existing issued share capital at approximately £1.1 billion based on the Closing Price ofan Aviva Share on 8 March 2005, being the last Business Day before this announcement (after taking account of Aviva's proposed final dividend of 16p per share for the year ended 31 December 2004, to which RAC Shareholders will not be entitled). (1) Irrevocable undertakings to accept the Offer have been received from the directors of RAC who hold RAC Shares, representing approximately 0.2 per cent. of RAC's existing issued share capital. 2.The Offer Under the terms of the Offer, RAC Shareholders will be entitled to receive: for every 1 RAC Share 0.7154 New Aviva Shares and 462.5p in cash and so in proportion for any other number of RAC Shares held. A Mix and Match Facility will be available to RAC Shareholders, further details of which are set out in paragraph 10 below. Based on the Closing Price of an Aviva Share on 8 March 2005, being the last Business Day before this announcement, the Offer values each RAC Share at approximately 925p and the existing issued share capital of RAC at approximately £1.1 billion (after taking account of Aviva's proposed final dividend of 16p per share for the year ended 31 December 2004 to which RAC Shareholders will not be entitled). (1) In addition, RAC Shareholders will retain the right to receive the proposed RAC final dividend of 15.6p per share for the year ended 31 December 2004 which is expected to be paid on 5 May 2005. Including the proposed RAC final dividend payable to RAC Shareholders, the value of the Offer represents a premium of approximately 27 per cent. over the Closing Price of a RAC Share of 742p on 7 March 2005, the last Business Day before the announcement by RAC that it had received an approach. The value of the Offer also represents a premium of approximately 34 per cent. over the average Closing Price of a RAC Share of 703p for the month before the announcement by RAC that it had received an approach. Full acceptance of the Offer (assuming full exercise of options under the RAC Share Option Schemes where the exercise price is less than the value of the Offer on the basis set out in paragraph 1 above) will involve the issue of up to 88.6 million New Aviva Shares (representing approximately 3.7 per cent. of the enlarged issued share capital of the Enlarged Aviva Group). As fractions of New Aviva Shares will not be allotted or issued to persons accepting the Offer, fractional entitlementsto New Aviva Shares will be aggregated and sold in the market and the net proceeds of sale will be distributed pro rata to persons entitled thereto. However, individual entitlements to amounts of less than £3 will not be paid to persons accepting the Offer but will be retained for the benefit of the Enlarged Aviva Group. The Offer will be for all the issued and to be issued RAC Shares (other than any RAC Shares already owned by a member of the Aviva Group). The RAC Shares are to be acquired by or on behalf of Aviva under the Offer fully paid and free from all liens, charges, equitable interests, encumbrances, rights of pre-emption and other third party rights and interests and together with all rights attaching thereto, including voting rights and the right to receive and retain all dividends and other distributions declared, made or paid after this announcement, save for the proposed RAC final dividend of 15.6p per share for the year ended 31 December 2004 proposed to be paid on 5 May 2005. The Offer will be subject to the conditions and certain further terms set out in this paragraph, paragraph 10 below and in Appendix I to this announcement and the further terms and conditions to be contained in the formal Offer Document and the related Form of Acceptance. 3.Background to and reasons for the Offer The board of Aviva believes that the Acquisition will create significant value for its shareholders by delivering a powerful new combination in insurance and motoring services, which will consolidate NUI's position in UK general insurance and provide the opportunity to realise the full potential of the RAC brand. The Acquisition is consistent with Aviva's strategy of growing its long-term savings business whilst maintaining a focused approach to general insurance as well as reinforcing the balance of the Aviva Group's earnings from life and non-life insurance activities. The Acquisition is expected to generate significant cost savings and is expected to be cash flow and earnings enhancing (on a modified statutory operating earnings per share basis and on an EEV operating earnings per share basis) for Aviva in 2006 and beyond. (2) (3) (4) (5) Market developments in general insurance The Acquisition is being made against a background of significant change in the UK general insurance market in recent years. Customer demands have evolved with the expectation of increased service levels and broader product offerings from insurance providers. Low cost and convenience are paramount and there is a growing propensity to purchase from trusted brands. Customer loyalty and retention have therefore become increasingly important to long-term profitability. At the same time, the influence of traditional methods of distribution has declined. Telephone and internet distribution channels now dominate and large retailers and brands, with low costs of customer acquisition, have emerged as powerful distributors. NUI at the forefront of market change Recognising changes in customer behaviour and the resulting shift in distribution, NUI has sought to lead the development of the industry and has been implementing a number of changes over the last few years. These changes have positioned NUI well in a market where customers now buy a broader range of motor-related products from trusted brands and where low cost and convenience have become paramount, playing to the strengths of providers with direct distribution and well-recognised brands. Firstly, in response to these market developments, NUI has closed its broker, Hill House Hammond, and is on target to transfer 500,000 policyholders successfully into its NUI Direct brand (a lower cost, higher value channel) contributing to the growth of 22 per cent. in its NUI Direct business in 2004. Secondly, within the UK personal lines market, NUI has been implementing a strategy to develop new revenue streams, increase customer retention and enhance the performance of its core insurance business. This has been particularly evident in motor insurance, which is the largest area of the personal lines general insurance market, where NUI is positioning itself as a motoring services provider by broadening its product base. Initiatives include: - the launch of NUI Rescue, with customer numbers reaching approximately 275,000 within two years. RAC is NUI's supplier for this service; - the development of a number of ground breaking products such as Pay As You DriveTM insurance, which uses patented black box technology to price the insurance risk according to actual driving experience. This has achieved strong success in the pilot to date and NUI has recently launched its first policy on this basis where young drivers can receive lower premiums by selecting where, when and how often they drive their car; and - in August 2004 NUI acquired HPI Holdings Limited, the UK's leading independent provider of vehicle information and checking services. Thirdly, NUI has enhanced its efficiency by leveraging its scale to take advantage of its position as a bulk purchaser of claims related goods and materials to deliver strong supply chain savings, while also investing in offshoring and process improvements to deliver savings across the business. Reflecting this strategy, the combined operating ratio, a key industry measure of efficiency and performance, has decreased from 101 per cent. in 2002 to 97 per cent. in 2004. Benefits of combining NUI and RAC The Acquisition creates a powerful new combination in insurance and motoring services in the UK. RAC has 2.2 million individual roadside members and a further 4.5 million corporate roadside customers through its corporate partnership relationships. RAC was voted the UK's number one roadside assistance provider by customers in the JD Power 2004 UK roadside assistance study. It is a leading player in the motoring services market with an exceptionally strong brand, achieving almost 100 per cent. brand awareness in the UK. RAC's Consumer Services business, which represents approximately 54 per cent. of profits, includes roadside recovery and has a range of individual motoring solutions including driver tuition through BSM, car financing, insurance, legal services, automotive glass and traffic and travelinformation. RAC is already one of NUI's largest suppliers. It has provided the motor claims notification customer helpline, roadside recovery and a roadside assistance service offered as an addition to NUI motor insurance policies for ten years. RAC has provided underwriting of NUI's motor legal expenses cover and operated its motor legal expenses claims handling service for seven years. For the last two years it has provided services to NUI's own branded roadside assistance product. The combination brings together RAC's powerful UK brand, customer base of more than 6 million and a leading motoring services business with NUI's complementary expertise in insurance. It will create a leading provider of motor insurance and motoring services in the UK. In particular, the combination: - accelerates NUI's strategic objective to capitalise on changes in the market place and capture higher value business by moving closer to customers and offering a broader range of products and services; - provides access to RAC's 2.2 million individual roadside members; - enhances NUI's partnership business by bringing new distribution partners, with an additional 4.5 million corporate roadside customers, and the potential to develop RAC's current partnership relationships with the broader range of products and services; - delivers a route to realise the potential of the RAC brand in insurance and financial services - areas where RAC already has ambitious plans for expansion; - is expected to create total pre-tax cost savings across the combined businesses of at least £80 million per annum to be achieved in 2006; (2) and - is expected to be cash flow and earnings enhancing (on a modified statutory operating earnings per share basis and on an EEV operating earnings per share basis) for Aviva in 2006, being the first full year following completion of the Acquisition, and beyond. (3) (4) (5) Synergies (2) The combination of NUI and RAC is expected to generate substantial synergies, both in terms of additional revenue benefits and cost savings. In 2006, total pre-tax cost savings across the combined businesses are expected to be at least £80 million per annum. (2) Revenue BenefitsNUI and RAC contribute complementary strengths in different product areas. The management of both NUI and RAC have identified significant opportunities to increase sales to the combined customer base, thereby accelerating the growth of the combined business. The board of Aviva has identified potential revenue opportunities that it believes will have a significant impact on the operating margin and profit of the combined organisation. Revenue benefits are expected to be derived principally from: - RAC direct insurance - the board of Aviva believes that improved customer penetration can be achieved by combining RAC's strong brand and large customer base with NUI's insurance expertise, which in turn will lead to additional profits. The RAC insurance brand is perceived as not having reached its full potential. In a recent survey by ICM, when prompted approximately 20 per cent. of those asked said they would buy motor insurance from RAC. However, against this backdrop, only 13 per cent. of RAC's individual roadside members have purchased more than one RAC product. The board of Aviva is excited by the opportunity the RAC insurance proposition provides and believes NUI can grow the insurance customer base by approximately 300,000 customers by the end of 2007. NUI has a proven track record of growing its own direct insurance business, which grew by 22 per cent. in 2004 and successfully developing its corporatepartnerships; and - Grow rescue products and risk pricing - it is NUI's aim to increase RAC's roadside assistance customer base from 6.7 million customers to 7.3 million by the end of 2007. The targeted sales of rescue products to NUI's existing customer base together with the application of NUI's risk pricing methodology (which applies insurance underwriting techniques) to roadside products is expected to result in increased volumes and profit margin. This risk based pricing methodology has already been used successfully by NUI in developing its own breakdown service and, within two years, NUI has acquired approximately 275,000 breakdown customers. The combination of RAC and NUI offers compelling opportunities to offer an expanded range of motoring and financial services products across the combined customer base using the most effective brand in each case. Cost Savings In addition, NUI believes the combined businesses have the potential to realise significant cost savings. It is expected that the identified potential pre-tax cost savings across the combined businesses will total at least £80 million per annum to be achieved in 2006. These estimated cost savings will be achieved from a combined NUI and RAC cost base of approximately £2.1 billion.(2) Savings across the combined businesses are expected to result from the removal of duplicated head office costs, a reduction in external advice costs, marketing economies, call centre efficiencies and a reduction in support staff including IT, HR and Finance. In addition, there are expected to be supply chain savings, as similar products are purchased across the two businesses.(2) In this area NUI has a proven track record, achieving an increase in supply chain savings of £55 million during 2004 in addition to £175 million cumulative supply chain benefits achieved in 2003. RAC currently has an IT support offshoring pilot which NUI intends to extend to include the offshoring of certain back office administration functions. Other identified cost savings include those expected to result from property disposalsand further operational efficiencies. Savings will be achieved with regard to maintaining the strong customer service standards of NUI and RAC, consistent with their trusted retail brands. Restructuring costs of approximately £100 million pre-tax are estimated to be incurred integrating the two businesses. 4.Integration plan for the combination of NUI and RAC The Acquisition will involve a comprehensive integration of RAC and NUI to ensure that RAC customers gain the full benefit of being part of the Enlarged Aviva Group and that the maximum level of synergies is achieved. The phasing of the integration will be structured so as to minimise any disruption to customers during the integration process. The RAC, BSM and Lex brands will be maintained and actively promoted alongside NUI. Management and employees On the Offer becoming or being declared unconditional in all respects, the accrued employment rights, including pensionrights, of all management and employees of the RAC Group will be protected. The total number of staff employed by NUI and RAC will be approximately 24,000. The board of Aviva believes that membership of the Enlarged Aviva Group will provide opportunities for employees across the enlarged group. It is, however, expected that approximately 1,700 UK roles will be affected as a result of the integration of the two businesses. Of these, approximately 900 roles will be lost through combining support functions. Following the success of NUI's offshoring operations, it is expected that RAC's offshore operations will be expanded and approximately 800 back office and administration roles will be offshored. It is not intended to move any customer facing front office operations offshore. Wherever possible reductions in staff numbers will be achieved through natural staff turnover and redeployment, although some compulsory redundancies are likely. However, NUI has staff turnover in a typical year in excess of these numbers. Additionally, as a result of the proposed growth plans the board of Aviva expects to create significantnumbers of new roles over the next three years in the combined organisation. The board of Aviva believes these changeswill assist in minimising the impact of these reductions. Employee representatives and employees will be consulted throughout this process. 5.Benefits for RAC customers The coming together of two powerful and trusted brands will ensure that customers benefit from a greatly enhanced rangeof products, particularly in the motoring services market. The board of Aviva believes that the increased scale and buying power of NUI and RAC will enhance customer service and value for money, both of which are key requirements for customers wishing to purchase insurance and motoring service products in today's marketplace. 6.Financial effects on Aviva (3) The Acquisition is expected to be cash flow and earnings enhancing (on a modified statutory operating earnings per share basis and on an EEV operating earnings per share basis) for Aviva in 2006, being the first full year following completion of the Acquisition. It will also enhance the Aviva Group's return on capital employed from 2006. (3) (4) (5)(6) The Acquisition is expected to enhance the quality of the Aviva Group's earnings, increasing the important cash-based earnings contribution to the Aviva Group from the non-life insurance business. (3) The increase in cash flow to the Aviva Group will be available for investment in growth in the life businesses, investment in NUI and RAC and will enhance Aviva Group's dividend cover. The Aviva Group's proforma EU Insurance Groups Directive solvency excess remains strong at approximately £3 billion as at 31 December 2004, after the estimated £0.6 billion impact of goodwill and equity issuance relating to the Acquisition. 7.Information on Aviva Aviva is the world's fifth-largest insurance group and the biggest in the UK. It is one of the leading providers of life and pensions products to Europe and has substantial businesses elsewhere around the world. Its main activities arelong-term savings, general insurance and fund management. It has premium income and investment sales from continuing operations of approximately £33 billion and over £273 billion of assets under management as at 31 December 2004. The Aviva Group has approximately 49,000 employees serving 30 million customers worldwide. Aviva's strategy is to be a leading European-based financial services group with a focus on long-term savings as Aviva's engine of growth; to take a focused approach to general insurance, with disciplined underwriting and efficient claims handling; to build a world-class fund management business; to build top-five positions in key markets; and to withdraw from lines of business or markets that do not offer the potential for market-leading positions or superior returns. 8.Information on NUI NUI is the largest general insurer in the UK and produces 60 per cent. of Aviva's general insurance business by gross written premiums. NUI's overall market share in the UK is 14 per cent. and it insures one in five households, one in seven motor vehicles and more than 800,000 businesses in the UK. NUI's core business priorities are rigorous cost control, disciplined underwriting and excellent customer service. NUI's stated strategy is to deliver high-quality earnings from market-leading positions in personal insurance and selected commercial lines. NUI's range of distribution channels and balanced portfolio of products and services enablesNUI to react flexibly to changing market conditions and to meet customer needs. NUI in recent years has invested in the development of innovative, tailored propositions such as digital flood mapping,Pay As You DriveTM insurance and NUI Rescue vehicle breakdown service, which has seen rapid growth. NUI continues to use its scale, market influence and expertise to drive cost efficiency to the benefit of shareholders and customers. NUI's premium income in 2004 was £5.4 billion, with operating profits before tax, amortisation of goodwill and exceptional items of £832 million and a combined operating ratio of 97 per cent. 9.Information on RAC RAC has 2.2 million individual roadside members and a further 4.5 million corporate roadside customers through its corporate partnership relationships. RAC was voted the UK's number one roadside assistance provider by customers in theJD Power 2004 UK roadside assistance study. It is a leading player in the motoring services market with an exceptionally strong brand - it achieves near 100 per cent. brand awareness in the UK. RAC's business is organised around four divisions - Consumer Services; Business Solutions; Lex Vehicle Leasing; and Manufacturer Support Services. The Consumer Services division represents approximately 54 per cent. of RAC's profits and has established itself as theprovider of a comprehensive range of individual motoring solutions including driver tuition through BSM, car financing,insurance, legal services, automotive glass and traffic and travel information. RAC believes that this range ofsolutions adds value and depth to its relationships with customers and enables it to create long term partnerships with their 2.2 million individual roadside members. The Business Solutions division includes claims management and accident services, vehicle inspections and customer contact centres. Lex Vehicle Leasing provides vehicle leasing, supply, management, maintenance and incident support for companies who outsource the day to day operation of their fleets. Manufacturer Support Services provides a broad range of warehousing, logistics and parts supply solutions to help businesses and the public sector maximise their operating efficiency. In addition, the division provides vehicle marketing and distribution for Hyundai in the UK. 10.Mix and Match Facility RAC Shareholders may elect under the terms of the Offer, subject to availability, to vary the proportions in which theyreceive New Aviva Shares and cash in respect of their holdings of RAC Shares. However, the total number of New Aviva Shares to be issued and the maximum aggregate amount of cash to be paid under the Offer will not be varied as a result of elections under the Mix and Match Facility. Accordingly, satisfaction of elections made by RAC Shareholders under the Mix and Match Facility will depend on the extent to which other RAC Shareholders make offsetting elections. Satisfaction of elections under the Mix and Match Facility will be effected on the basis of 646.5 pence in cash (being the Closing Price of an Aviva Share on 8 March 2005, the last Business Day before this announcement, after taking account of Aviva's proposed final dividend of 16p per share for the year ended 31 December 2004, to which RAC Shareholders will not be entitled) for each New Aviva Share (and vice versa). To the extent that elections cannot be satisfied in full, they will be scaled down on a pro rata basis. As a result, RAC Shareholders who make an election under the Mix and Match Facility will not necessarily know the exact number of New Aviva Shares or the amount of cash they will receive until settlement of the consideration under the Offer. Elections under the Mix and Match Facility will not affect the entitlements of those RAC Shareholders who do not make any such elections. The Mix and Match Facility will remain open until the first closing date of the Offer (and Aviva may close it on that or any subsequent closing date). If the Offer is not then unconditional as to acceptances in accordance with paragraph (a) of Appendix I to this announcement, Aviva may extend the Mix and Match Facility to a later date. If the Mix and Match Facility has been closed, then Aviva reserves the right to reintroduce a Mix and Match Facility, subject to therules of the City Code. The Mix and Match Facility is conditional on the Offer becoming or being declared unconditional in all respects. Further details on the Mix and Match Facility will be included in the formal Offer Document and the related Form of Acceptance. 11. Financing The Offer includes (assuming full exercise of options, but without taking account of the exercise proceeds of those options, under the RAC Share Option Schemes where the exercise price is less than the value of the Offer on the basis set out in paragraph 1 above) approximately £572 million of cash consideration which will be financed from the Aviva Group's current resources. 12. The New Aviva Shares The New Aviva Shares to be issued pursuant to the Offer will be issued credited as fully paid and will rank pari passu in all respects with the existing Aviva Shares. The RAC Shareholders will not be entitled to Aviva's proposed final dividend of 16p per share for the year ended 31 December 2004. 13. RAC Share Option Schemes The Offer will extend to RAC Shares issued or unconditionally allotted upon the exercise of options under the RAC ShareOption Schemes whilst the Offer remains open for acceptance or by such earlier date as Aviva may decide, not being earlier than the date on which the Offer becomes unconditional as to acceptances, or if later, the first closing date of the Offer. To the extent that such options are not exercised, appropriate proposals will be made in due course to participants inthe RAC Share Option Schemes to take effect once the Offer becomes, or is, declared unconditional in all respects. 14. Disclosure of interests in RAC Save for 1,114,000 RAC Shares owned or controlled by Aviva, its subsidiaries or their respective pension funds in the course of insurance, fund management or pension fund operations and 625 RAC Shares owned by the spouse of a director ofAviva, as at the close of business on 8 March 2005, being the latest practicable day prior to the date of this announcement, neither Aviva, nor any of the directors of Aviva nor their close relatives and related trusts, nor, so far as Aviva is aware, any party acting in concert with Aviva, owned or controlled any RAC Shares or held any options to purchase any RAC Shares, or had any arrangements in relation to any RAC Shares, or had entered into any derivative referenced to RAC Shares which remained outstanding. Arrangements include an indemnity or option arrangement or an agreement or understanding, whether formal or informal, of whatever nature relating to RAC Shares which is or may be an inducement to one or more persons to deal or refrain from dealing in such shares. 15. Settlement, listing and dealing Application will be made to the London Stock Exchange for the New Aviva Shares to be admitted to trading on its market for listed securities and to the UK Listing Authority for the New Aviva Shares to be admitted to the Official List. It is expected that listing will become effective and that dealings will commence on the first Business Day following the date on which the Offer becomes or is declared unconditional in all respects (subject only to the condition relating toAdmission set out in paragraph (c) of Appendix I to this announcement). Certificates for New Aviva Shares to be issued to RAC Shareholders will be despatched no later than 14 days after the date on which the Offer becomes or is declared unconditional in all respects. No certificates for New Aviva Shares willbe issued in respect of the entitlements of those RAC Shareholders who hold their shares in CREST, settlement for which will be made through the applicable CREST procedures. Further details on listing, dealing and settlement will be included in the formal Offer Document. 16. Delisting, cancellation of trading and compulsory acquisition If sufficient acceptances are received, Aviva intends to exercise its rights pursuant to the provisions of section 428 to 430F (inclusive) of the Companies Act to acquire compulsorily any outstanding RAC Shares to which the Offer relatesand to apply in due course to delist the RAC Shares from the Official List and to cancel trading on the London Stock Exchange's market for listed securities. 17. Irrevocable undertakings Irrevocable undertakings to accept the Offer have been received from the directors of RAC who hold RAC Shares in respect of 239,991 RAC Shares, representing approximately 0.2 per cent. of RAC's existing issued share capital in aggregate. The irrevocable undertakings will only cease to be binding in the event that a competing offer becomes wholly unconditional. 18. The recommendation The directors of RAC, who have been so advised by Lazard, consider the terms of the Offer to be fair and reasonable, so far as RAC Shareholders taken as a whole are concerned. In providing its advice to the directors of RAC, Lazard has taken into account the commercial assessments of the directors of RAC. Accordingly, the directors of RAC unanimously recommend RAC Shareholders to accept the Offer, as they have irrevocably undertaken to do in respect of their own beneficial holdings, amounting, in aggregate, to 239,991 RAC Shares, representing approximately 0.2 per cent. of RAC'sexisting issued share capital. 19. Expected timetable The Offer Document, containing the full terms and conditions of the Offer, will be despatched to RAC Shareholders within 28 days of this announcement unless agreed otherwise by the Panel. 20. General In accordance with Rule 2.10 of the City Code, as at 8 March 2005 (being the last Business Day before this announcement), 118,807,243 RAC Shares were in issue. The International Securities Identification Number for RAC Shares is GB0005145239. In addition, as at 8 March 2005 (being the last Business Day before this announcement), 2,282,763,711Aviva Shares were in issue. The International Securities Identification Number for Aviva Shares is GB0002162385. The sources and bases of information contained in this announcement are contained in Appendix II. The definitions of certain expressions used in this announcement are contained in Appendix III. - ends - Enquiries: Aviva plcAnalysts and investorsSteve Riley, investor relations director +44 (0)20 7662 8115 MediaTransaction Press Office +44 (0)20 7662 2866Hayley Stimpson, director of external affairs +44 (0)20 7662 7544Sue Winston, head of group media relations +44 (0)20 7662 8221Louise Zucchi, head of NUI media relations +44 (0)20 7662 2866 Goldman Sachs International +44 (0)20 7774 1000John RafterAndrew Dodd JPMorgan Cazenove +44 (0)20 7588 2828Tim WiseConor Hillery Financial Dynamics +44 (0)20 7269 7200Rob BailhacheNic Bennett RAC plcAnalysts and investorsNiall Addison, +44 (0)7764 624 701Group Finance and Investor Relations Manager MediaNeil Lovell, Corporate Communications Director +44 (0)7768 298 636 Lazard +44 (0)20 7187 2000Will SamuelPaul JamesonSamuel Bertrand Hoare Govett +44 (0)20 7678 8000Bob PringleCaroline Griffiths Brunswick +44 (0)20 7404 5959Anita ScottNigel Prideaux Notes to editors: - Aviva is the world's fifth-largest insurance group based on gross world-wide premiums and is the UK's largest insurer. - Aviva's principal business activities are long-term savings, fund management and general insurance, with world-wide premium income and retail investment sales from continuing operations of £33 billion and assets under management of more than £273 billion. - In 2004 Aviva's long-term savings, investment and health business premium income was £23 billion (70 per cent.) and general insurance premium income was £10 billion (30 per cent.). - NUI is the largest general insurer in the UK and produces 60 per cent. of Aviva's worldwide general insurancebusiness by gross written premiums. NUI's overall market share in the UK is 14 per cent. and it insures one in five households, one in seven motor vehicles and more than 800,000 businesses in the UK. - RAC has 2.2 million individual roadside members and a further 4.5 million corporate roadside customers through its corporate partnership relationships. RAC was voted the UK's number one roadside assistance provider by customers in the JD Power 2004 UK roadside assistance study. It is a leading player in the motoring services market with an exceptionally strong brand - it achieves near 100 per cent. brand awareness in the UK. RAC's business is organised around four divisions: Consumer Services; Business Solutions; Lex Vehicle Leasing; and Manufacturer Support Services. NEWSWIRES: There will be a conference call today for wire services at 8:15am (GMT) on +44 (0) 20 7365 1828 Quote: Aviva, Richard Harvey. PRESS: There will be a press conference today at 12.30pm (GMT) at Aviva, St Helen's, 1 Undershaft, London, EC3P 3DQ. Journalists wishing to attend should ring Anna Marsh, Financial Dynamics in advance on 020 7269 7229. ANALYSTS: A presentation to investors and analysts will take place at 9:30am (GMT) at St Helen's, 1 Undershaft, London, EC3P 3DQ. The investors and analysts presentation is being filmed for live webcast and can be viewed on the Aviva Group's website www.aviva.com or on www.cantos.com. In addition a replay will be available on these websites later today. There will also be a live teleconference link to the investor and analyst meeting on +44 (0) 20 7365 1854. A replay facility will be available for two weeks on +44 (0) 20 7984 7578. The pass code is 7125647# for the whole presentation including Question & Answer session or 3831407# for Question & Answer session only. The presentation slides will be available on the Aviva Group's website, www.aviva.com/presentations from 9am (GMT). The Aviva media centre at www.aviva.com/media includes images, company information and news release archive. High resolution images are also available for the media to view and download free of charge from www.vismedia.co.uk. Photographs are available from the Aviva media centre at www.aviva.com/media. Notes: 1. Based on a total of 118,807,243 RAC Shares in issue on 8 March 2005, being the last Business Day before this announcement. 2. The expected cost savings have been calculated on the basis of the existing costs and operating structures of the companies and by reference to current prices and the current regulatory environment. The statements of estimated cost savings relate to future actions and circumstances which, by their nature, involve risks, uncertainties and other factors. As a result of this, the cost savings referred to may not be achieved, or those achieved could be materially different from those estimated. 3. A statement that the Offer will be cash flow and earnings accretive in 2006 does not constitute a profit forecast and should not be interpreted to mean that earnings for 2006 or any subsequent financial period would necessarily be greater than those for any preceding financial period.Related Shares:
Aviva