Aviva’s Preference Share Offer: A Reasonable Offer, But Could It Be Better?

Introduction: A Second Bite at the Cherry

On March 11, 2025, Aviva PLC announced a tender offer and a proposed cancellation of its 8.375% and 8.75% Cumulative Irredeemable Preference Shares. This follows a similar, and highly controversial, attempt in 2018, which was ultimately withdrawn after significant investor backlash. While this new offer is structured differently, and is undoubtedly an improvement on the 2018 proposal, it still raises important questions for individual investors, particularly those who rely on these shares for income.

ShareSoc has received numerous queries and concerns from our members. This blog post aims to unpack the offer, analyse its fairness, and provide guidance for preference shareholders. We’ll consider the perspectives of different investor types and outline the key decisions shareholders need to make.

Background: Lessons (Partly) Learned from 2018

The 2018 debacle saw Aviva attempt to cancel its preference shares at par value (£1), citing changes in regulatory capital requirements (Solvency II). This triggered a furious response from investors, many of whom had purchased the shares at a premium, relying on their “irredeemable” status and the reliable income they provided. ShareSoc and UKSA were at the forefront of the opposition. Aviva ultimately backed down, but the damage to investor confidence and the reputation of the London Stock Exchange was significant.

A key commitment from Aviva in 2018 was that any future action on the preference shares would take into account their “fair market value.” This offer is, in part, a test of that commitment. The regulatory landscape has also shifted: from January 1, 2026, these preference shares will no longer count towards Aviva’s regulatory capital, making them an expensive form of financing.

The 2025 Offer: Details and Mechanics

The 2025 offer has two main components: 

1. Tender Offer: Aviva, through Jefferies International Limited, is inviting holders to tender their shares for cash. The tender offer prices are:
   a – 8.375% Preference Shares: £1.44 (plus accrued dividends of 0.8p = £1.448)
   b – 8.75% Preference Shares: £1.50 (plus accrued dividends of 2.9p = £1.529)
2. Cancellation (if the tender offer isn’t fully subscribed): Aviva is seeking shareholder approval to cancel all outstanding preference shares. This requires a special resolution at a General Meeting, and a crucial advisory vote from the preference shareholders themselves. If the cancellation goes ahead, shareholders will receive:
   a – 8.375% Preference Shares: £1.44 (plus accrued dividends of 1.2p = £1.452)
   b – 8.75% Preference Shares: £1.50 (plus accrued dividends of 3.4p = £1.534) 

Plus, a “voting fee” of £0.02 per share only if they either tender their shares (Option 1) or appoint the Chair as their proxy to vote (Option 2 – in favour, against, or abstain). 

Is the Offer “Fair”? A Closer Look

Aviva argues the offer prices represent a premium to the market price and reflect “fair market value.” Let’s analyse this:

• Premium to a Depressed Price: The offer is a premium to the price immediately before the announcement, but that price was already depressed, anticipating corporate action. The 2018 events also had a lasting negative impact. A fairer comparison might be to pre-2018 prices, adjusted for interest rate changes, or to comparable instruments.
• The “Clean Price” vs. Total Return: Aviva highlights the “clean price” (excluding accrued dividends). While technically correct, it doesn’t change the overall return for investors.
• Loss of Future Income: This is a key concern. These shares were prized for their high, reliable yield. The offer prices, while a premium to the recent market price, don’t fully compensate for the loss of this future income, particularly in a relatively low-interest-rate environment.
• Comparison to long-dated Aviva bonds: The proposed prices correspond to a yield some 1% per annum below the yield-to-call on Aviva’s 6.875% 2058 subordinated bonds, which are callable in 2038.

Yield Analysis: A Reasonable Return?

Let’s focus on the 8.75% Preference Shares:

• Current Yield: The offer price of £1.529 (including accrued dividends) gives a running yield of (8.75p / 152.9p) * 100% = 5.72%.
• Alternative Investments: Gilts: Long-dated UK gilt yields are currently around 5.3%.
• Yield Gap: The difference is 0.42 percentage points.
• Implied Fair Value (Consol Calculation): If a consol (perpetual bond) paying 5.3% (the gilt yield) costs £100, a consol paying 8.75% should theoretically cost (£8.75 / 0.053) = £165.09.
• Risk Premium: The crucial question is whether a 0.42% yield premium is enough to compensate for Aviva’s higher risk compared to UK gilts. While Aviva is a strong company, it is riskier. The preference shares are also junior to policyholder liabilities, although senior to subordinated debt. A 0.42% premium is arguably thin. A “fair” price, reflecting a more typical risk premium, would likely be higher than the £1.529 offered, but lower than the £165.09 theoretical consol value. My view is that a price 5% to 10% higher, perhaps in the region of £1.60 to £1.65, would be better all round.

The CGT Impact

Capital gains tax (CGT) is a significant factor. For those who bought below the offer price, a gain will be realised.

• Example: Purchase price of £1.10, offer price of £1.529, gives a gain of £0.429.
• Tax Rate: The CGT rate applicable to this gain could be up to 24% (as per the November 2024 budget changes, assuming this applies in 2025. Checking with a tax advisor is always recommended.)
• CGT Liability: At 24%, the tax would be £0.103 per share, reducing net proceeds to £1.426. This is a worst-case scenario; many investors will have lower CGT rates or be able to utilize allowances.

Voting Strategy: Key Considerations

The voting process is complex, and understanding the implications is crucial:

• Tendering Shares (Option 1): This automatically constitutes a vote in favour of the cancellation. You receive the tender offer price (if accepted) or the cancellation amount. You also receive the £0.02 voting fee.
• Voting Only Instruction (Option 2): You appoint the Chair as your proxy to vote, and you can choose to vote for, against, or abstain on the cancellation. You still receive the £0.02 voting fee, regardless of how you vote.
• Voting Only Instruction (Option 3): Other ways to vote. You do not receive a voting fee.
• Doing Nothing: If you do nothing, and the cancellation goes ahead, you receive the cancellation amount, but you do not receive the voting fee.

Crucially, there is no disadvantage to submitting a Voting Only Instruction (Option 2) and voting against the cancellation, other than the administrative effort. You still receive the £0.02 voting fee, and if the cancellation is defeated, you retain your preference shares. The only scenario where you might lose out is if the tender offer proceeds without the cancellation, and the tender offer price is higher than the market price subsequently settles at. This is a possibility, but given the relatively small difference between the tender offer and cancellation amounts (primarily the accrued dividends), it seems a relatively small risk.

What Preference Shareholders Should Do

1. Understand the Details: Read the Tender Offer Memorandum, Shareholder Circular, and Advisory Vote Circular (https://clients.dfkingltd.com/Aviva).
2. Assess Your Position: Calculate your purchase price, potential CGT liability, and the impact on your income.
3. VOTE! Use either Option 1 (tender) or Option 2 (vote via proxy). Even if you support the cancellation, voting ensures you receive the £0.02 fee. If you oppose it, Option 2 is your only way to express that and receive the fee.
4. Consider Independent Advice: Consult a financial advisor if you are unsure.
5. Engage with ShareSoc: ShareSoc are monitoring the situation. Join ShareSoc to strengthen our collective voice.
6. Write to your MP
7. Consider the GA transaction.

My View: A Reasonable Offer, But Room for Improvement

I acknowledge that Aviva has, to a significant extent, learned lessons from the 2018 debacle. This offer is structured more fairly, with a price that reflects a premium to the recent market price and a mechanism that allows shareholders to vote.

However, we believe the offer is still slightly on the low side. While the 5.72% yield is attractive compared to gilts, the risk premium is arguably insufficient to fully compensate for the loss of a perpetual income stream from a company that, while strong, is not risk-free. A price 5% to 10% higher would, in our view, be closer to a truly “fair” value.

I call on Aviva to:

• Consider a Modest Increase: While we recognise the offer is within a reasonable range, a small increase would demonstrate greater respect for long-term preference shareholders.
• Maintain Transparency: Continue to engage openly with shareholders and provide clear justifications for their decisions.

I call on the FCA and FRC to:

• Monitor the Situation: Ensure the process is conducted fairly and transparently.
• Assess the Wider Impact: Consider the implications for the preference share market and investor confidence.

Conclusion: A Difficult Decision

The Aviva preference share offer presents a complex decision for investors. While the offer is a significant improvement on the 2018 attempt, it’s not a slam-dunk “good deal.” Shareholders must weigh the offered price, the potential loss of future income, their individual tax situation, and their risk tolerance. Voting, and understanding the implications of each voting option, is crucial. ShareSoc will, I am sure, continue to advocate for the interests of individual investors in this matter.

Cliff Weight, member of ShareSoc and ShareSoc Education Committee and Policy Committee

This article reflects the opinions of its author Cliff Weight and not necessarily those of ShareSoc. Nothing in this article should be taken as financial advice. Financial Advice requires knowledge of an individual’s personal circumstances and the payment of a fee.

DISCLOSURE: The author holds shares in Aviva plc and GA Preference shares.