Direct Line, the company behind Churchill Insurance, is the target of a £3.1 billion takeover bid from a foreign entity, marking another instance of a British firm attracting overseas interest.
The Belgian insurance competitor Ageas has put forward a cash-and-share offer of 233p per share, which is 43% above the current share price of Direct Line.
While no agreement has been finalized, Ageas has expressed eagerness to engage in discussions with the board of Direct Line regarding the proposal.
Ageas has a deadline of March 27 to either formalize its bid or withdraw. Direct Line has yet to state the matter. Following the news, Direct Line’s shares experienced a 25% increase, reaching 204p.
This move on Direct Line is part of a broader trend of foreign buyers capitalizing on the low valuations in the UK stock market.
Other British companies in similar situations include Currys, which is resisting a takeover attempt by the American conglomerate Elliott, and Wincanton, the UK’s sole remaining listed road haulage company, which is currently in the midst of a bidding contest between French and American contenders.
Direct Line, renowned for its iconic 1980s TV commercials featuring a miniature red telephone on wheels, has grown to become a leading insurance brand in the UK. The company, which now includes Churchill known for its advertisements with a talking bulldog, was established in 1985 by insurance entrepreneur Peter Wood. It was initially part of RBS, now NatWest, before being spun off into the stock market in 2012 as a FTSE 250 entity.
Ageas, the Belgian insurer, is contemplating a formal bid comprising 100p per share in cash and 133p in Ageas shares.
Shareholders of Direct Line are expected to closely evaluate the share portion of Ageas’s offer, as accepting the deal would make them significant stakeholders in the Belgian company.
Fosun, a Chinese investment group, is currently the principal shareholder of Ageas. Should the acquisition proceed, Direct Line’s shareholders would constitute approximately 22% of the combined entity’s ownership.
The Belgian firm, with a valuation of £6 billion, is notably larger than Direct Line, which is valued at £2.5 billion.
In a statement, Ageas highlighted its belief that merging with Direct Line would create a formidable entity in the UK’s personal lines insurance sector, particularly strengthening its presence in the household and motor insurance markets, which are Ageas’s preferred business areas.
Direct Line’s stock has experienced a downturn over the past year, largely due to the departure of Penny James from the CEO position. Her exit in January came after a reduction in dividends and the cancellation of a buyback plan, prompted by a profit warning due to a spike in claims. Jon Greenwood has since taken over as the interim chief executive.
Ageas, which already operates in the UK insurance market through its British subsidiary, is a significant player in life insurance and is seeking to expand its portfolio.
