Cevian creates stake in Aviva to push to cut costs and pay £ 5bn

Leading European activist investor Cevian has built a 5% stake in Aviva and is pressuring insurer FTSE 100 to further cut costs and return £ 5bn to shareholders.

“Aviva has been mismanaged for many years and its high-quality core businesses have been hampered by high costs and a number of poor strategic decisions,” said Christer Gardell, co-founder of Cevian.

Shares of Aviva rose 3.3% to £ 4.24 after Cevian released a statement on Tuesday morning.

Instead of urging a change of leadership at the head of the London-listed group, Cevian is pushing chief executive Amanda Blanc to build on the set of provisions she has announced since taking office. almost a year ago.

Aviva has agreed to this for the past year to sell eight non-core companies, which raised nearly £ 8bn, in an attempt to refocus on the UK, Irish and Canadian markets. Some analysts criticized the global ambitions pursued by their previous general executives for not being focused and leaving the group with an overly large cost base.

The company “has the potential to become a focused, well-capitalized market leader that produces profitable growth, generates significant cash, and is highly valued in equity markets,” Gardell said.

Cevian, which manages more than $ 16 billion on behalf of some 350 global pension, endowment and other investor funds, began building its stake in Aviva earlier this year, according to someone familiar with the matter. . With a 4.95% stake, the Swedish group is now the second largest shareholder in Aviva, after BlackRock.

Aviva has promised substantial returns and cost reductions as its centerpieces change of strategy under White, who has told investors that his mantra should move quickly.

However, Cevian wants to get a specific return of £ 5bn in dividends or capital rewards that the insurer has above regulatory requirements. The activist fund also believes the cost reduction can go further, calling for reductions of more than £ 500 million from Aviva’s annual cost base in 2023, compared to the management’s target of £ 300 million. pound sterling. It is also driving a more fluid management structure, according to someone familiar with the matter.

There have been constructive talks between Cevian and Aviva’s management in recent months, according to people familiar with the matter, who added that the fund was not pushing for a seat on the board.

Aviva’s share price is expected to rise to more than eight pounds in three years, based on a double of the full-year dividend at 45p, according to Cevian estimates. The insurer could also benefit if interest rates start to rise, the activist investor said.

Aviva shares are trading at seven advanced gains, according to S&P Capital IQ data, a discount compared to UK rivals, including Legal & General, Phoenix Group and Direct Line, which are trading at nine times or more.

Aviva said it had made “significant strategic progress over the past 11 months” and remained “very focused” on improving its performance.

“We regularly collaborate with investors and welcome any reflections that lead us towards our goal of providing long-term shareholder value,” he added.

Aviva is not Cevian’s first target British insurer. The fund ran a multi-year campaign against rival RSA, which was completed its sale in Canada Intact and Denmark Tryg last week.

Cevian, who calls himself a “constructive activist,” owns a stake for about five years and has stakes from 10 to 15 companies.