Aviva 2006 Annual Report Download - page 125

Overview Business review Governance Financial statements Other information
Aviva plc
Annual Report and Accounts 2006 121
3 – Subsidiaries continued
The value of the agreement to distribute through AIB’s networks has been identified as a separate intangible asset and valued by an
independent third party at £45 million, using estimated post-tax cash flows and discount rates. It has been assessed as having a life
of 25 years and is being amortised over that period, with a corresponding release of the applicable deferred tax provision.
The residual goodwill of £57 million represents future synergies expected to arise in the combined life operations.
As disclosed in the supplementary information on page 231, the embedded value of the long-term business acquired was £310 million,
representing the net assets adjusted for other intangible assets net of tax.
(ii) Eagle Insurance Company Limited
On 1 February 2006, the Group acquired a 51% interest in Eagle Insurance Limited (Eagle), the third-largest insurer in Sri Lanka, by
buying a majority shareholding in Eagle’s immediate holding company, NDB Finance Lanka (Pvt) Limited. At the same time, Eagle entered
into a ten year bancassurance agreement with National Development Bank Limited (NDB), Sri Lanka’s biggest development bank and
Eagle’s other major shareholder. The cash consideration, including purchase costs, was £15 million. The fair value of the Group’s share of
net assets acquired was £12 million, including intangibles of £2 million, giving rise to £3 million of goodwill on acquisition.
As disclosed in the supplementary information on page 231, the embedded value of the long-term business acquired was £17 million,
representing the net assets adjusted for other intangible assets net of tax.
(iii) Canadian brokers
On 28 April 2006, the Group acquired a 20% holding in Dale-Parizeau L.M. Inc, a Canadian insurance broker, for a consideration of
£16 million which includes purchase costs. The allocation of the risks and rewards of ownership between the Group and third-party
investors in the broker has led the Group to consolidate its results for the period since acquisition to 31 December 2006. The fair value of
the net assets acquired, including intangibles of £10 million, was £9 million, giving rise to £7 million of goodwill on acquisition.
On 4 December 2006, the Group acquired a 20% holding in a second Canadian Insurance broker,Morris & Mackenzie Inc (M&M),
for a consideration of £28 million including purchase costs. The allocation of the risks and rewards of ownership between the Group
and third-party investors in the broker has led the Group to consolidate its results for the period since acquisition to 31 December 2006.
Due to the proximity of the acquisition date to the year end, provisional fair values have been used and will be adjusted within
12 months. The provisional fair value of the net assets acquired, including intangibles of £14 million, was £12 million, giving rise to
£16 million of goodwill on acquisition. On 31 December 2006, the Group completed the disposal of M&M’s non-Quebec based
operations for £9 million. The sale did not give rise to any gain or loss. Net assets at disposal represented goodwill, intangible assets
and deferred tax liabilities.
(iv) AmerUs Group Co
On 15 November 2006, the Group acquired 100% of the common stock of AmerUs Group Co. (AmerUs) for US$69 in cash per
common shareof AmerUs. AmerUs is a leading provider of equity-indexed life and annuity products to the United States retirement
and savings markets, and the acquisition establishes a leading presence for the Group in these selected high-growth segments.
The total purchase price of US$3.1 billion (£1.7 billion) represents cash consideration for AmerUs shares and stock options,
and stock-based compensation vesting on change of control. The purchase consideration was partly financed by a £903 million
placing of the Company’s ordinary shares, with the balance of funding being provided by internal resources and external debt.
The share placing was completed on 13 July 2006, with 129 million shares issued on 18 July, at £7 per share.
The issue of new shares in the Company has attracted merger relief under section 131 of the Companies Act 1985. Of the
£903 million above, £32 million has been credited to sharecapital (see note 27) and £871 million has been credited to the merger
reserve (see note 32(a)). Expenses of £11 million have been charged to the sharepremium account.
The AmerUs acquisition has given rise to goodwill on acquisition of £669 million, calculated as follows:
Purchase cost:
£m
Cash paid 1,669
Attributable costs 11
Total consideration 1,680