UPDATE 3-Aviva sees 1.2 bln euro windfall from Delta IPO

* Says Delta Lloyd shares to be offered at 15.5-19 euros

* Valued at 2.6-3.1 billion euros

* Shares expected to start trading Nov. 3 (Adds IPO managers, background)

By Myles Neligan

LONDON, Oct 19 (Reuters) - British insurer Aviva (AV.L) expects to pocket 1.2 billion euros ($1.79 billion) for future growth and possible acquisitions when it floats Dutch unit Delta Lloyd in western Europe's largest IPO this year.

Delta Lloyd shares are set to start trading on Euronext's Amsterdam exchange on Nov. 3 at between 15.5 and 19 euros each, valuing the business at 2.6 billion to 3.1 billion euros, Aviva said on Monday. About 42 percent of Delta's shares will be sold, leaving Aviva as its biggest investor with 57 percent, with Dutch charitable trust Fonds NutsOhra holding the balance.

"This step, which will be the largest IPO in western Europe this year, will free up capital for us to use elsewhere and give us the option of exploring further growth opportunities," Aviva Chief Executive Andrew Moss said in a statement.

Aviva shares were down 1.5 percent at 443.4 pence by 1030 GMT.

PRICED TO GO

"From Aviva's point of view, it is probably less than they would like to have received for it, at less than embedded value, but at the same time it is a loss-making business," said MF Global analyst Peter Eliot.

At the upper end of the price range, the shares are at a 24 percent discount to Delta Lloyd's own estimate of its market-consistent embedded value (MCEV), a measure of an insurance company's worth.

Delta Lloyd calculated its MCEV at 4.1 billion euros at the end of June.

Reuters reported on Sunday that the IPO would be offered at a discount to MCEV to stimulate investor interest amid a raft of competing share sales. [ID:nLI598916]

Under Aviva's more conservative accounting methods, Delta Lloyd had an MCEV of 2.7 billion euros at the half-year, pricing the IPO at a slight premium at the mid-point of the range.

The Delta IPO looks set to rank as the second-biggest in Europe this year after that of Polish utility PGE, which is expected to raise $2.1 billion when it goes public on Nov. 6.

Investor appetite for new share issues remains subdued in Europe following last year's banking crisis, with a raft of secondary capital-raisings absorbing most available cash.

This is in contrast to the United States, where a buoyant stock market has encouraged companies to list on the NYSE Euronext and Nasdaq.

TAKEOVER PLANS

Aviva said when it first announced plans to float Delta Lloyd in August that it might use the proceeds to acquire weaker rivals. [ID:nL612559]

The company on Monday said Delta Lloyd's stock market listing could also help the company, the only Dutch insurer not to receive a bailout during the crisis, make acquisitions as the Benelux insurance market consolidates.

At a news conference in Amsterdam, Delta Lloyd Chief Executive Niek Hoek confirmed the company was interested in acquisitions, albeit on the right terms, while finance chief Peter Kok said the group was aiming for a dividend payout of 40 to 45 percent of its net operational result.

Aviva would have to approve any Delta Lloyd merger or takeover that took the British insurer's stake below 50 percent.

Delta Lloyd said on Monday that it made a net loss of 88 million pounds ($143.4 million) in the nine months to Sept 30, while new business sales for the period fell 12 percent to 2.8 billion pounds.

Aviva is launching a two week bookbuilding process on Monday managed by investment banks Goldman Sachs (GS.N), Morgan Stanley (MS.N), Bank of America Merrill Lynch (BAC.N), JP Morgan (JPM.N) and Royal Bank of Scotland (RBS.L).

(Additional reporting by Clara Ferreira-Marques and Ben Berkowitz in Amsterdam; editing by Jason Neely)