Why activist investors are targeting Aviva

Summary

  • Europe’s largest activist fund Cevian is pressing Aviva to cut costs and return £5 billion to its shareholders.
  • As per the co-founder of the Cevian, Aviva has been managed inappropriately for many years.

Emma Walmsley, CEO of drugmaker GlaxoSmithKline Plc (LON: GSK), had recently been targeted by the New York hedge fund Elliott Management. The Elliott Management is run by billionaire Paul Singer, and the group has acquired a substantial stake in GSK. As per the details available, Elliott has doubted the ability of Emma to run the company in future.

Following a similar tone, Swedish investment firm Cevian Capital, which has built a 5% stake in Aviva Plc, is pressing Aviva for cost cuts and to return £5 billion to its shareholders.

FTSE 100 constituent Aviva is an insurance company listed on the London Stock Exchange. After Emma Walmsley, CEO of Aviva, Amanda Blanc is the second female FTSE 100 boss whose strategy has been questioned by an activist investor.

Christer Gardell, co-Founder of Cevian, said Aviva had been managed poorly for the past few years. The core business of Aviva is lagging behind due to high costs and the bad strategic decisions opted by the company.

At present, Cevian is not urging to change the top management but is pushing Blanc to build on the series of disposals that she announced a year ago and is pending since her takeover.

Blanc took over Aviva last July. Since then, the insurer has sold eight businesses in France, Italy and Asia, and raised capital of £7.5 billion. The company sold these non-core businesses intending to focus on its key markets in the UK, Ireland, and Canada.

According to Gardell, Aviva has the potential to become the market leader, and it can deliver a significant return to its shareholders.

Continuing to express his confidence in Aviva, Gardell said: “A well-focused company like Aviva’s share price should move higher than £8 per share within three years, and dividend should also be more than twice to 45p.”

Also Read: How Aviva Announced Dividend Pay-Outs Despite Lower FY 2020 Profits

On 9 June, Share of Aviva (LON: AV.) was trading at GBX 413.80 as of 10:04 AM GMT +1, down by 1.90%.

Aviva’s strategy under Blanc has primarily focused on improving company’s performance, the company has promised to cut down the cost and generate substantial returns.

However, Cevian believes that cost-cutting targets are not appropriate and can be stretched further to reach at least £500 million by 2023 instead of the management’s committed target of £300 million by 2022.

Adding further, Gardell said that Aviva has some money in excess of the regulatory requirements, and Cevian is looking to return that excess capital of around £5 billion either in the form of dividends or buybacks to its shareholders.

Cevian has assets under management of around $16 billion and holds a total of 4.95% stake in Aviva, making him the second-largest shareholder of Aviva after Blackrock.


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