Activist investor Cevian Capital today declared it had taken a near-5% stake in insurance giant Aviva and demanded the company returns £5 billion to shareholders.
That would represent a third of the current stock market value of the entire company.
Aviva is currently in the middle of a dramatic shake-up under chief executive Amanda Blanc, who has overseen a flurry of major disposals to focus down on its core insurance work in the UK, Ireland and Canada.
Cevian, famed for demanding a major overhaul at Pearson and others, backed her and chairman George Culmer in their attempts to revitalise the group, but ratcheted up the pressure on them to perform, also pushing for an eventual doubling of the dividend.
It said: “Aviva has been poorly managed for many years, and its high quality core businesses have been held back by high costs and a series of bad strategic decisions.”
However, it “now has the potential to become a focused and well-capitalised market leader that produces profitable growth, generates significant cash, and is highly appreciated in the equity markets.”
It added that it expects the “good divestments” Blanc has announced to be completed, saying “following this, Aviva should be able to return £5 billion of excess capital in 2022.
“Costs are moving in the right direction and we expect the ambition level to be raised over time - we see potential for cost reductions of at least £500 million by 2023.”
A focused and high performing Aviva should be worth at least 800p a share in three years, with dividends more than doubled to 45p, it said.
Shares today jumped 13.4p to 424.1p.
Cevian first started building up its stake in Aviva after the company’s August strategy update last year. It issued the statement today because it was about to go through the 5% mark at which international investors must disclose their positions.
At 4.9% today, it is the second largest shareholder behind BlackRock.
Sources said Blanc had met multiple times with Cevian.
While the overall tone of the statement was supportive, some pointed out that the return to shareholders of £5 billion was higher than many were currently expecting.
Analysts have pencilled in upwards of £3.5 billion.
Others pointed out that, on both that and the dividend demands, Aviva would need to get permission from City regulators, persuading them it was financially strong enough to afford them.
Blanc has stressed that some of the returns she gets from her disposals has to pay down its relatively high debt levels before going back to shareholders.
Since arriving in July 2020 she has sold ventures in France, Singapore, Vietnam and Italy.
The e3 billion February plan to sell France being the most significant as it was the largest and most complicated division to sell.
It had diverse business lines and numerous joint ventures, plus liabilities from a catastrophic legacy product from the 1990s that practically guaranteed profits for investors and losses for Aviva.
While classed as an activist, Cevian does not always agitate for change. At Aviva’s rival RSA, where it built up a 15% holding, it famously supported chief executive Stephen Hester in his radical shakeup of the company.
Since it demanded new management at Pearson, the shares have increased around 40%.
It previously took an 8% stake in Old Mutual, which also underwent a major restructuring afterwards.
Founded in 2002, it is the biggest dedicated activist investor in Europe, currently holding stakes in 11 companies in six countries including ABB, Ericsson and Nordea bank.
It manages e16 billion for pension funds and other institutional investors, holding onto the shares it buys for an average of five years and taking one to three investments a year in companies it feels could be improved, or are underappreciated.