Direct Line backs £3.6bn takeover move by rival Aviva

Direct Line has said it plans to back a takeover move by rival insurance firm Aviva.

The firms said they have reached an initial agreement over a cash-and-shares deal valuing Direct Line at £3.61 billion, or 275p per share.

Aviva, which has offices in York and Sheffield, made the sweetened approach after seeing a £3.3 billion takeover move rebuffed last month.

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On Friday, Direct Line said it would be minded to support the move, which would see Aviva pay 129.7p in cash, and 0.2867 of its own shares for each Direct Line share.

Direct Line has said it plans to back a takeover move by rival insurance firm Aviva, and the firms said they have reached an initial agreement over a cash-and-shares deal valuing Direct Line at £3.61 billion, or 275p per share. (Photo by Direct Line Group/PA Wire)Direct Line has said it plans to back a takeover move by rival insurance firm Aviva, and the firms said they have reached an initial agreement over a cash-and-shares deal valuing Direct Line at £3.61 billion, or 275p per share. (Photo by Direct Line Group/PA Wire)
Direct Line has said it plans to back a takeover move by rival insurance firm Aviva, and the firms said they have reached an initial agreement over a cash-and-shares deal valuing Direct Line at £3.61 billion, or 275p per share. (Photo by Direct Line Group/PA Wire)

A deal between the two firms would create a significant force in the motor insurance sector, estimated to cover more than a fifth of the total UK market.

Bosses at Direct Line said combining the businesses would “provide the opportunity to deliver significant synergies, creating substantial additional value for both sets of shareholders”.

In a joint statement to shareholders, Direct Line said: “The board of Direct Line remains confident in Direct Line's prospects as a standalone company and continues to have conviction in the capabilities of the newly established leadership team to deliver the announced strategy.

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"That said, the board of Direct Line has carefully considered the proposal with its advisers and consulted with Direct Line shareholders during the offer period, and has concluded that the proposal is at a value that it would be minded to recommend to Direct Line shareholders should a firm intention to make an offer pursuant to Rule 2.7 of the code be announced on such financial terms, subject to agreement of all other terms and conditions of an offer and completion of reciprocal customary due diligence.”

"Direct Line shareholders would own approximately 12.5 per cent of the issued and to be issued share capital of Aviva.

"The Direct Line board believes that, in addition to the attractive headline value per share, the combination would provide the opportunity to deliver significant synergies, creating substantial additional value for both sets of shareholders.”

The joint statement added: “Aviva believes in the strong strategic and financial logic for a combination of Direct Line into the Aviva group, details of which were set out in Aviva's announcement of 27 November 2024.”

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"There can be no certainty that any firm offer will be made, even if the pre-conditions referred to above are satisfied or waived. A further announcement will be made in due course.

In a note, analysts from Panmure Liberum said: “Aviva’s revised bid for DLG of 275p has led to a preliminary agreement between the two boards.

“Our modelling suggests the bid implies 25 per cent expenses synergies and only 5 per cent capital synergies.

"At this level, the offer price would represent a similar multiple to transactions seen in the sector and allay Direct Line Group’s shareholders’ concerns that the current earnings base is depressed whilst it undertakes a turnaround strategy.

"We think the revised offer is good for both sets of shareholders – Aviva has not overpaid and DLG shareholders crystalize an attractive return.”

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