Cevian’s attack on Aviva feels akin to a fist in a velvet glove.
While the activist investor speaks sweetly of newish CEO Amanda Blanc’s shake-up of the group so far, it combines the honey with some bitterly aggressive targets.
The unanswered question: what if she fails to deliver?
At first blush, the starkest demand is that £5 billion return to investors from her impressive run of disposals.
Actually, while it’s higher than most in the City are expecting, it’s not as demanding as it seems. If all goes to plan, the sales will fetch £7.5 billion. Blanc needs to put £1.9 billion of that into cutting Aviva’s debt pile and retain a bit more to satisfy regulators, but it’s achievable.
More scary is its demand she more than doubles the dividend.
Last year’s was cut to 21p and Blanc has promised “low to mid single digit” growth. Maybe 30p, tops. But Cevian wants 45p. That 15p difference is an extra £589 million. Year in, year out.
Sure, Blanc has some fat to cut in the core business that could be used to pay divis, and the current market for general insurance is hot, but how long will that last?
She doesn’t want to be in the situation Aviva has found itself so often before where it pays too much in dividends and leaves too little to invest in the business.
As the third successive Aviva CEO to cut the divi on her arrival, she knows that more than most.
The beauty of Cevian’s arrival for Blanc is that it validates her strategy as she pushes efficiency reforms through the workforce.
The threat is, it forces her to cut too deep.
