RAC bought by Aviva for £1.1 billion

Leading UK motoring service provider, RAC, has been bought by insurance provider, Aviva, for £1.1 billion.

Aviva, the world's fifth largest insurance group, also own Norwich Union Insurance (NUI). The insurance provider said that the new acquisition would accelerate the growth and profitability of NUI, "creating a powerful new combination in insurance and motoring services".

Aviva said that the combination of NUI and RAC was expected to generate substantial revenue benefits and cost savings across the combined companies, resulting in pre-tax cost savings of at least £80 million per year in 2006.

However, Aviva announced that around 1,700 jobs are expected to be lost in the UK as a result of the acquisition. Around 900 of these would be lost through combining support functions. It is also expected that around 800 back office and administration roles will be moved outside the UK, but Aviva said that no customer-facing front office operations would be moved.

RAC is already one of NUI's largest suppliers, providing motor claims, notification customer helpline, roadside recovery and a roadside assistance service as an addition to NUI motor policies for the last ten years. It has also provided underwriting of NUI's motor legal expenses cover and operated its motor legal expenses claims handling service for seven years and as well as beginning to provide services to NUI's own branded roadside assistance product two years ago.

RAC has 2.2 million individual roadside members and a further 4.5 million corporate partnership relationships. The company also operates the BSM driving schools.

NUI is the largest general insurer in the UK with an overall market share of 14%. It currently insures one in five households, one in seven motor vehicles and more than 800,000 businesses in the UK.

Aviva have also announced a 25% rise in worldwide operating profits, which rose to £2,334 million last year.

Commenting on the deal, Richard Harvey, group chief executive of Aviva, said: "The combination of Norwich Union Insurance and RAC will be a powerful new force in the UK insurance and motoring services industry and has great potential to create significant value for our shareholders through bottom-line delivery of earnings and cash generation."

Patrick Snowball, Chief Executive of NUI and Group Executive Director, Aviva,

added: "This is a transformational acquisition for Norwich Union Insurance, which consolidates our position as the UK's leading general insurer and substantially advances our motoring services to customers."

Commenting on the offer, Peter Smith, chairman of RAC, said: "This offer represents a significant premium to our recent share price reflecting the potential of the combined companies. This offer not only represents substantial value in terms of the cash element to our shareholders but also, through receiving Aviva shares, it allows them to benefit from the future growth of the combined companies.”

(KMcA/SP)