Aviva (LON:AV) share price bounced back this week amid rumours that the company will be acquired. After falling to a low of 375.7p on Tuesday, the shares jumped to a high of 395p. It has been in a consolidation phase in the past few months.
Will Allianz (ETR:ALVG) make a bid?
The biggest catalyst for the Aviva share price is the ongoing rumours that the company could be acquired. The likely acquirer would be Allianz, the German insurance giant that has operations around the world.
This would be a big deal. For one, Allianz is one of the biggest companies in the industry with a market cap of more than €88 billion. Aviva, on the other hand, is a leading British insurer with over £10 billion in market cap. Therefore, a potential bid would likely value Aviva at at least £12 billion.
The combination would create a giant in the insurance industry. Aviva had over £16 billion in revenues in 2022 while Allianz had £132 billion. Also, the two companies would have over £1.4 trillion in assets.
It is unclear whether Allianz or any other large insurance or private equity groups will be interested in Aviva. However, I believe that such a bid makes sense since Aviva has implemented a successful turnaround strategy.
As part of this approach, the company has exited some of its international businesses as it focuses on its areas of strength. It recently decided to sell its 25.9% stake in Singlife joint venture to Sumitomo Life for £800 million. That was a good deal since the business gave it just £17 million in operating profit in 2022.
Aviva also sold Aviva France in 2021 to Aema Groupe for £2.8 billion. In all, it has sold non-core businesses worth over £5 billion. And most recently,it bought AIG (NYSE:AIG) UK’s life business for $563 million.
Aviva’s business is doing well
Aviva’s operations are doing well, which makes it a viable acquisition target. Its most recent results showed that its operating profit rose by 8% to £715 million while its solvency II ratio jumped by 26% to £648 million. In all, the company grew its sales, profitability and dividends in a highly challenging market.
Aviva believes that its operating profit this year will be ~£1.35 billion, meaning that the company is abit undervalued. Also, Aviva’s price to book ratio stands at 1.1x, lower than that of key peers like Prudential (LON:PRU), Legal & General, and Admiral Group (LON:ADML). A DCF valuation also sees the Aviva share price being undervalued by ~35%.
It is unclear whether a company like Allianz or even Generali (BIT:GASI) will make a bid or whether Aviva will accept that proposal.
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