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Aviva On the Road to Recovery

Tony Reading
November 21, 2012

LONDON -- The appointment of a new CEO for composite insurer Aviva (LSE: AV.L  ) (NYSE: AV  ) yesterday put in place the final element of its recovery plan.

The company is a household name and has one of the fattest yields, at around 8%, of any FTSE 100 (UKX) stock. It is popular with value investors, but their hopes have repeatedly been frustrated. There was a real fear in the summer, when its languishing share price took the yield over 9%, that the company could be heading for a dividend cut.

But temporary executive chairman John MacFarlane has made monumental efforts to devise and execute a recovery strategy, and there is now a clear path to reconditioning the business that could finally lead to the share price rerating loyal investors have been waiting for.

Shareholder coup
Aviva has been looking for a new CEO since Andrew Moss was ousted in the "Shareholder Spring," as much because of shareholder ire over his generous remuneration than the company's underperformance. It could prove to be one of the most rewarding shareholder coups of recent times.

Following Moss's departure, chairman John McFarlane took on executive responsibilities, rolled up his sleeves, and set about turning around the company, doing things that Aviva's bureaucratic and overstaffed management had just talked about.

Top of his agenda was to sell or close non-core operations, trimming the company down to focus on where it has competitive strengths. Its shareholding in Dutch Delta Lloyd has been substantially reduced, and smaller Far Eastern operations exited.

Most importantly, it appears that Aviva's U.S. operation is close to being sold. The Sunday Telegraph recently reported that the company has entered into exclusive talks with U.S. investment company Guggenheim Partners. Although this will generate a paper loss, it will boost Aviva's capital and reduce its gearing, both of which are poorer than industry peers'.

The new man
McFarlane's rapid action stabilized the company at what could have been a dangerous time. But it raised the danger that a new CEO would change direction yet again. So new man Mark Wilson, who takes over as CEO on 1 January, was at pains yesterday to commend "the first stage of the strategy that addresses the immediat