By Max Clarke

Global insurance group, Aviva (LSE: AV) are selling their RAC car insurance company to US hedge fund, The Carlyle Group for £1.0 billion.

Pending competition commission approvals, the transaction- valued at 17 times RAC’s 2010 net earnings, will take place later this year.

“The sale of RAC is another important step for Aviva and realises significant value for our shareholders,” said Andrew Moss, group chief executive of Aviva. “Together with the recent partial disposal of Delta Lloyd, it demonstrates clear delivery of our strategy and provides the flexibility to deepen our presence in the priority markets where we have strength and scale.”

The sale supports Aviva’s strategy to focus on insurance and savings businesses in its priority markets and represents further significant progress in the transformation of Aviva’s portfolio. The proceeds, which will be held as cash on the balance sheet, will enhance liquidity and further strengthen Aviva’s balance sheet, enabling Aviva to continue to invest in its priority markets. In addition to the strategic benefits, Aviva remains confident in meeting the group’s near-term financial targets.

Based on 31 December 2010 results, this transaction will increase net assets by £0.6 billion and tangible net assets by £1.0 billion, or approximately 37p per share. Aviva’s IGD surplus will improve by £0.2 billion. The accounting profit on disposal is expected to be £0.6 billion.

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