UPDATE 4-RSA keeps Aviva in its sights despite bid rebuff

* RSA says remains open to talks with Aviva

* RSA offered 5 bln stg for main general insurance units

* Analysts say RSA might have to return with higher offer

* Aviva and RSA shares fall more than 2 percent

(Adds fund manager comment, closing share prices)

By Sudip Kar-Gupta

LONDON, Aug 16 (BestGrowthStock) – British insurer RSA (RSA.L: ) said
on Monday it was open to talks with Aviva (AV.L: ) after its
larger rival rejected RSA’s 5 billion pound ($7.8 billion) cash
offer for its core non-life units.

Analysts and investors said RSA might have to raise its
offer by several hundred million pounds if it really wanted
Aviva’s general insurance businesses in the UK, Ireland and

RSA declined to comment on whether it might raise its offer
but maintained that a deal made strategic sense.

“RSA considers that its proposal represents fair value for
the target businesses and would be in the interests of both sets
of shareholders,” RSA said in a statement, adding the deal could
generate 300 million pounds in annual cost synergies before tax.

Aviva — which in 2006 had an abortive attempt at buying
Britain’s biggest listed insurer, Prudential Plc (PRU.L: ) — said
it told RSA on Aug. 6 that it felt the offer was unacceptable.

“Given the compelling strategic and financial benefits to
Aviva shareholders of retaining the general insurance business,
its upside potential and the terms offered by RSA, the board was
unanimous in rejecting this proposal,” said Chairman Colin
Sharman, who got the offer in a letter from RSA Chairman John

Aviva also pointed out that a 21 percent rise in half-year
operating profit showed it was in good shape. [ID:nLDE67408J]

Sharman, a Liberal Democrat peer at the House of Lords, is a
trained accountant who spent most of his career at KPMG.

Aviva’s general insurance operations had a 2009 operating
profit of around 1 billion pounds — roughly half of the group’s
overall operating profit of around 2 billion pounds.

RSA said it was offering around 9.8 times earnings and 1.6
times net assets for the Aviva businesses it targets.

However, one Aviva institutional shareholder said RSA would
have to come back with more money.

“We don’t think 5 billion was enough. We think it should be
worth more than that,” said Jane Coffey, head of equities at
Royal London Asset Management, which owns around 0.5 percent of
Aviva’s share capital.

Aviva shares fell 2.5 percent to 377.90 pence, giving the
group a market capitalisation of around 10.5 billion pounds. RSA
fell 2.3 percent to 124.50 pence, giving RSA a stock market
value of around 4.3 billion pounds.

Stockbroker Killik & Co said it could be hard for RSA to
pull off a successful bid, since if RSA made a higher offer its
management would then be open to accusations of overpaying.
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Goldman Sachs said in a research note that RSA’s offer price
equated to around 10 times Aviva’s estimated 2010 group
earnings. Goldman added that the RSA bid was a positive for
Aviva shareholders and kept a “conviction buy” rating on Aviva.

RSA’s bid for the Aviva businesses would have been funded by
a rights issue underwritten by BNP Paribas (BNPP.PA: ), Deutsche
Bank (DBKGn.DE: ) and HSBC (HSBA.L: ).

Its bid overtures to Aviva are the latest consolidation
attempt in the world’s insurance industry.

Prudential Plc scrapped a record $35.5 billion bid for AIG’s
(AIG.N: ) Asian unit AIA this year while UK insurance buyout
vehicle Resolution (RSL.L: ) clinched a deal to buy AXA’s
(AXAF.PA: ) UK life insurance arm. [ID:nLDE67B1SE] [ID:nLDE65N074]

Resolution, which reports half-year results on Wednesday,
declined to comment on the Aviva situation.

One major Aviva shareholder said there were potential
synergies in a tie-up between RSA and Aviva.

The investor, who asked not to be named, made the comment to
Reuters on Sunday following media reports that investors were
unhappy that Aviva rejected the bid without consulting them.

The Sunday Times said some shareholders sought a strategic
review of Aviva which could include calls for a break-up, while
the Sunday Telegraph quoted unnamed shareholders as saying the
decision not to consult them risked souring relations.

Aviva’s top three institutional shareholders — Blackrock
(BLK.N: ), Franklin Templeton and Legal & General (LGEN.L: ) — all
declined to comment on the situation on Monday.
(Additional reporting by Victoria Howley and Paul Hoskins;
Editing by Matthew Scuffham and Michael Shields)
($1=.6408 Pound)

UPDATE 4-RSA keeps Aviva in its sights despite bid rebuff