Investors still hopeful Aviva will raise Pru offer

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The Independent Online

Aviva, the UK's largest insurer, raised hopes that it may sweeten its all-share offer for Prudential yesterday, issuing a formal denial in response to reports that its current proposal was as high as it could go.

The announcement came as the chief executive Richard Harvey and finance director Andrew Moss toured the City, meeting Prudential's largest shareholders to try to convince them of the merits of their unofficial proposal.

Aviva and Prudential have a number of major investors in common, for whom the deal would represent a complex transfer in value. One institutional investor with shareholdings in both companies said yesterday: "If you are a Prudential shareholder, with the possibility of an overseas bidder coming in, you'll want to drive a harder bargain than what's on the table at the moment."

Aviva has offered 82 shares for every 100 Prudential shares, equivalent to about 708p for each Prudential share. The deal would create one of the world's largest insurance companies with a combined market valuation of £37bn.

However, shares in Prudential raced through 760p on Monday, closing at 741.5p yesterday - almost 5 per cent above the value of the Aviva proposal.

Mr Harvey and Mr Moss are believed to have visited at least half a dozen institutions yesterday, including Schroders, Fidelity, UBS, Merrill Lynch Investment Managers, Insight Investment and Legal & General. However, none were willing to openly disclose their opinion of the deal.

Analysts at Merrill Lynch, separate from the asset management arm, cut their rating on Aviva yesterday from "buy" to "neutral", claiming they were concerned the group would overpay for Prudential. David Nisbet, an analyst at Merrill Lynch, said: "Any offer over 770p would destroy value for Aviva's shareholders."

Speculation continued over the possibility of other financial services groups entering the bidding yesterday, with renewed talk Aviva was as likely a target as Prudential.

AIG, AXA and Allianz are still considered the three most likely contenders to make a bid. Analysts at Williams de Broë suggested HSBC was a possible bidder. Patrick Barton said: "While the rest of the world speculates on which insurance company might come in to spoil Aviva's cunning plan to acquire some growth on the cheap, we wonder whether HSBC could be warming up the slide rule." Analysts at Fox-Pitt Kelton said if Aviva failed to win Prudential, its next most likely target would be Aegon - which would give it a substantial foothold in the US, as well as increase its scale in Europe. Aviva sharesclosed down 2.2 per cent at 830p, further weakening the value of its offer.

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