Aviva-Prudential: The merger that never was

March and April witnessed a fair amount of mergers and acquisitions (M&A) activity, but arguably one of the bigger M&A stories of that period was a merger that never came to pass.

In late March, Aviva ppl in the United Kingdom formally withdrew a $17-billion (US$29.6-billion) proposal to merge with Prudential ppl.

Prudential’s board initially rejected Aviva’s all-share proposal, despite Aviva’s offering a premium to the current share price. Following the Prudential board’s rejection of the proposal, Aviva is reported to have sought support directly from Prudential shareholders. But the idea was later abandoned and the proposal shelved.

“The rationale for the acquisition relies on combining the geographic strengths of the two companies,” Fitch ratings service noted of the merger implications in a press release. “Aviva has a very strong position in Europe, while Prudential has very strong positions in the U.S.A. and Asia.”

Fitch had predicted that any merger between Aviva and Prudential would result in “downward pressure” on Prudential’s ‘AA’ rating and a “potentially positive” effect on Aviva’s current ‘A+’ rating.

“Historically, the Aviva group has been very successful in executing mergers,” Sanjeev Shah, director in Fitch’s Insurance Group, said. “However, if a potential bid for Prudential were to be successful, this would be Aviva’s biggest merger to date and would therefore also be the most complex to integrate.”

Aviva’s bid for Prudential is officially withdrawn, and speculation is rife about what M&A activity might transpire next. Citing anonymous sources, the Financial Times online suggested Axa, the French insurer, and American International Group, the world’s largest insurer by value, “were seen as possible bidders for either of the two British companies [Aviva or Prudential].”