Aviva PLC (AV.LN) Monday confirmed it will float at least 30% of Dutch financial services unit Delta Lloyd NV on Euronext Amsterdam next month, freeing up capital for future acquisitions and marking what would be the largest initial public offering in Europe this year at an estimated EUR1.09 billion.

After initially rising on the news, Aviva shares at 1035 GMT were down 10 pence, or 2.2%, at 442 pence.

The U.K. insurer said it will keep a majority stake in Delta Lloyd in the transaction, which it had flagged in August. It holds 92% of the company.

Aviva said the offering "would bring the flexibility to pursue balance sheet restructuring opportunities or to explore other opportunities for growth." Aviva Chief Executive Andrew Moss in August said he was "absolutely determined" that the company be in a position to take advantage of possible acquisitions. Because of its large exposure to overseas market, Aviva has performed better than most of its U.K. peers through the financial crisis.

Aviva and Delta Lloyd executives previously said the decision to make the IPO was made jointly.

Aviva Monday said Delta Lloyd would benefit from a new base of shareholders supportive of its growth ambitions in the Benelux region, and put the Dutch company in a better position as the industry readies for a round of consolidation in the Netherlands and Belgium.

Delta Lloyd offers life insurance, general insurance, fund management and banking products, mainly in the Netherlands and Belgium. At June 30, its market-consistent embedded value was EUR4.1 billion net of minorities, including life MCEV of EUR4.3 billion, gross of minorities. It had gross written premiums for the six months ended June 30 of EUR2.8 billion, and total assets of EUR63.1 billion.

Eamonn Flanagan, an analyst at Shore Capital with a buy rating on Aviva, said that suggests a 30% stake would be worth around GBP1 billion (EUR1.09 billion), and called the transaction "a smart move" since Aviva only has two votes of eight on Delta Lloyd's board despite its majority ownership. However, he said Aviva's plan to explore other growth opportunities could be a worry, since keeping capital for such possibilities is one reason Aviva cut its dividend by 31%, to 9 pence a share, in the first half.

If Aviva raises GBP1 billion, its excess capital will rise to GBP5.3 billion including surplus default provisions, analysts at Oriel Securities said, keeping a buy rating on the stock. The insurer raised about GBP500 million by selling its Australian life and pensions and wealth management businesses to National Australia Bank Ltd. (NAB) in a deal that completed Oct. 1.

Moody's Investors Service that month said the planned IPO could reduce Aviva's earnings but that might be mitigated by reinvestment of the proceeds. It said the transaction wouldn't affect Aviva's credit ratings.

European IPO activity has been subdued this year, with data provider Dealogic tracking just EUR635 million raised across 43 deals in the first nine months, compared with EUR54 billion in 413 transactions in the first nine months of 2007 when markets were booming, and about EUR12 billion in 194 offerings in the same period in 2008.

The largest IPO on a European exchange so far this year was the GBP200 million (EUR218 million) raised by Max Property Group PLC (MAX.LN) on London's junior Alternative Investment Market in May.

The lead banks handling the Delta Lloyd IPO are Bank of America/Merrill Lynch, Goldman Sachs, JPMorgan, Morgan Stanley and Royal Bank of Scotland. A prospectus will be published by the end of October.

Company Web site: http://www.aviva.com

-By Margot Patrick, Dow Jones Newswires; +44 (0)20 7842 9451; margot.patrick@dowjones.com
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