Explore Aviva’s strategic shift with their plan to cancel preference shares, aiming for financial agility and stakeholder value.
Aviva has reignited its initiative to cancel £450 million worth of preference shares, a move reminiscent of a similar proposal from seven years ago that faced significant opposition. This time, the proposal is being put to a shareholder vote and includes a notable premium over the shares’ par value, aiming to address past criticisms.
Back in 2018, Aviva’s attempt to eliminate these ‘irredeemable’ shares at par value sparked widespread discontent, leading to parliamentary scrutiny and the eventual resignation of then CEO Mark Wilson. The Financial Conduct Authority (FCA) subsequently issued a public censure regarding Aviva’s communications during this tumultuous period.
The renewed plan has gained traction among institutional investors due to the enticing premium offered. Nevertheless, some retail investors, who depend on the shares for a consistent income, have voiced their concerns. According to The Times, Doug Brodie, a financial adviser and founder of Chancery Lane Income Planners, criticized the proposal, questioning the rationale for revisiting a plan that had previously stirred controversy.
The preference shares, originally issued in the 1990s, have historically provided Aviva with capital advantages. However, upcoming Solvency II regulations will render these shares obsolete in terms of contributing to the company’s capital base starting next year. Aviva has characterized them as ‘an inefficient form of funding which no longer serves their intended purpose’.
Aviva has articulated that its current proposal offers ‘a fair and compelling proposition for preference shareholders by providing liquidity at a premium to market prices’. The company has emphasized its commitment to upholding its prior pledge to consider the fair market value of these shares in any actions taken.
The outcome of the vote, set for April 15, will be pivotal in determining whether Aviva can proceed with the cancellation, necessitating a 75% approval from preference shareholders.
In a related development, Aviva reported a 29% surge in operating profit within its wealth business for 2024, reaching £129 million, up from £100 million in 2023. This growth was driven by increasing revenues in workplace and platform services, despite heightened investments in direct wealth propositions. Aviva aims to more than double its wealth business profit to £280 million by 2027 through ongoing investments.
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