Richard Harvey, the chief executive of Aviva, is to appeal directly for support from leading shareholders in Prudential after the insurer rejected a 700p-a-share takeover approach from its rival.
Mr Harvey spent yesterday discussing the bid for Prudential, which values the company at £17bn, with his closest advisers, after Sir David Clementi, Pru's chairman, and Mark Tucker, the chief executive, rejected Aviva's approach.
Prudential will make a formal statement to the Stock Exchange today, confirming that it has turned down an approach from Aviva. It will say: "The Board of Prudential, which has taken independent financial advice, does not consider that the proposal is in the best interests of its shareholders and has rejected it."
Prudential shares closed at 672p on Friday. They are expected to rise sharply when trading begins this morning, amid mounting speculation that Aviva could increase its offer, or face competition for Pru from another bidder, such as the French insurance group AXA.
Marcus Barnard, an analyst at SG Securities, said: "As an opening gambit, 700p is not bad but Aviva needs to raise the offer." Mr Barnard said a bid closer to Aviva's own share price, which ended Friday at 850.5p, would be needed to succeed.
Mr Harvey is understood to be keen to avoid a hostile bid for Pru. Last month he publicly described the chances of Aviva making a hostile bid for a rival as "on the very low probability list". Although Aviva has a successful track record of incorporating insurance businesses, including Norwich Union, Commercial Union and General Accident, none of these deals were hostile.
Mr Harvey will concentrate on persuading Pru's largest shareholders, which include UBS, Schroders, Merrill Lynch and Legal & General, that the takeover is in the interests of both companies. He will argue that Pru has capital constraints that will prevent it taking advantage of international opportunities, particularly in North America, where its Jackson National Life business is profitable but small.
While Mr Tucker unveiled a strong set of results last week, with a better-than-expected 33 per cent increase in profits, Aviva will point to the fact that Pru had to launch a £1bn rights issue in 2004 to support its UK operations. The fallout from the rights issue, which followed a dividend cut in 2003, eventually resulted in the removal of Pru's then chief executive Jonathan Bloomer. Mr Tucker, a former head of Pru's successful Asian business, which Aviva covets, took over at the company only last year.
Pru, will base its defence on the argument that its established operations in the US and Asia have better growth prospects than Aviva's continental European interests. Its US business contributed £150m to the group's profits last year and Pru also had £750m of the proceeds of its rights issue remaining. The insurer is also one of only two players in the UK bulk annuity market, which is set to boom as more companies attempt to outsource their occupational pension liabilities.
A merger of Pru and Aviva would create a business worth £37bn, large enough to rival European giants such as AXA and Allianz of Germany. Last week, Henri de Castries, the chief executive of AXA, which has been persistently linked to rumours of a bid for Pru, dropped the broadest hint yet that the group is considering an approach.Reuse content