Aviva Plc (AV/), the U.K.’s second-biggest insurer by market value, agreed to sell its U.S. life unit for $1.8 billion to a division of Leon Black’s Apollo Global Management LLC to increase its financial strength.
Aviva will receive $1.55 billion of cash from the sale after it pays off external debt, the London-based company said in a statement today. Aviva Chief Financial Officer Pat Regan said last month that the company planned to sell the U.S. business for a “significant discount” to its June book value of 2.4 billion pounds ($3.9 billion).
“The sale of Aviva USA is an important step forward in the delivery of our strategic plan,” Chairman John McFarlane said in the statement. “It considerably strengthens Aviva’s financial position, increases group liquidity and improves our economic capital surplus, whilst also reducing its volatility.”
McFarlane has pledged to exit 16 businesses that together tie up 6 billion pounds of capital as the insurer seeks to build up reserves depleted by the European sovereign debt crisis. Aviva’s capital has been hurt by the crisis more than any other U.K. insurer because it gets 40 percent of its life insurance operating profit from the region and holds more euro region sovereign debt than competitors.
Aviva fell 4 pence, or 1 percent, to 380 pence as of 11:23 a.m. in London trading. The stock has gained 26 percent this year, valuing the company at 11.2 billion pounds.
Apollo (APO), a New York-based private-equity firm, is buying Aviva’s U.S. life and annuity business through its Athene Holding Ltd. unit. Apollo in October boosted capital at Athene by contributing assets worth more than $800 million from a publicly traded fund it manages. Annuities are investment products sold by life-insurers that offer guaranteed income for retirees.
Aviva added the U.S. unit when it agreed to buy Des Moines, Iowa-based AmerUs Group Co. in July 2006 for $2.9 billion. The deal was Aviva’s largest-ever acquisition at the time and part of then Chief Executive Officer Richard Harvey’s strategy of taking advantage of the U.S.’s retiring Baby Boom generation, the 78 million people born in the country between 1946 and 1964.
Aviva this month said it would sell its joint venture in Spanish life insurer Aseval to Bankia SA (BKIA) for about 608 million euros ($803 million). The transaction was also part of Aviva’s strategy of selling non-core businesses to build up its reserves, McFarlane said in a Dec. 18 statement.
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