Aviva to axe 1,700 jobs in £1.1bn takeover of RAC

Insurance giant Aviva has unveiled a £1.1bn deal to buy motoring services group RAC, threatening 1,700 British jobs.

Insurance giant Aviva has unveiled a £1.1bn deal to buy motoring services group RAC, threatening 1,700 British jobs.

Aviva, the owner of Norwich Union, sees potential for increased sales of financial services to RAC's 2.2 million roadside assistance members. Richard Harvey, Aviva's chief executive, said that RAC "fits exactly" into its general insurance business and called the deal a "win-win" for both.

Aviva estimates it can achieve annual cost savings of at least £80m by 2006 by combining RAC with Norwich Union. The takeover will result in the loss of 900 jobs from removing the overlap of back-office operations and a further 800 jobs will move offshore. Last year, the company sent 2,600 jobs offshore.

There would be no compulsory redundancies and no customer-facing jobs would be lost, Aviva said. In fact, to achieve its target of gaining 300,000 new insurance customers at RAC, it said it would need to hire up to 1,500 frontline staff over the next three years. At the moment, only 2 per cent of RAC members also buy car insurance from the organisation.

Patrick Snowball, chief executive of Norwich Union, said the deal would bring together two of the UK's biggest brands and would tap into RAC's membership to make the most of its "underdeveloped brand" in financial services.

"Be in no doubt - this is a transformational deal for Norwich Union Insurance," he said. "When it comes to their car, we will help customers learn to drive it, buy it, insure it and if something goes wrong get it back on the road."

Under the terms of the deal, Aviva will pay 0.7154 new Aviva shares and 462.5p in cash for each RAC share. The deal is expected to take two months to complete. The offer values RAC at 925p a share - a 27 per cent premium to Monday's closing price.

It is generally regarded as a knock-out price that makes a counterbid unlikely, especially as the RAC management strongly backed Aviva's offer.

Andy Harrison, the RAC chief executive, who stands to make at least £800,000 from his shareholding, said: "It's a great deal - our shareholders are very pleased. It's a high price because it offers a big opportunity in financial services." He was confident that Aviva would keep the RAC management.

The deal was announced as Aviva reported a 25 per cent rise in annual operating profits to £2.34bn amid strong demand for general insurance and sales growth of 12 per cent in long-term savings.