Direct Line has accepted a £3.6 billion takeover offer from Aviva, setting the stage for the creation of one of Britain’s largest motor insurers.
The agreement, announced on Friday morning, involves a provisional offer of 275p per share from Aviva. This follows two earlier bids that were rejected by Direct Line, including a 250p per share bid dismissed last week as “highly opportunistic and substantially undervaluing the company.” Aviva also made a 261p per share offer on Thursday before increasing its bid.
Direct Line, which owns brands such as Churchill and Green Flag, has been undergoing a turnaround effort under CEO Adam Winslow, who joined from Aviva earlier this year. The company had previously rebuffed two takeover attempts by Belgian insurer Ageas earlier in the year.
Abid Hussain of Panmure Liberum commented: “We believe the revised offer benefits both sets of shareholders. Aviva has not overpaid, and Direct Line shareholders achieve an attractive return.”
The announcement caused Direct Line shares to surge as investors responded positively to the news.
Direct Line, established in 1985 as part of the Royal Bank of Scotland, was sold off following the bank’s bailout during the 2008 financial crisis.
In recent years, the company has faced challenges, including stricter car insurance market regulations and delays in adjusting premiums amid soaring repair costs driven by inflation and parts shortages. Last year, it scrapped its dividend after an unexpectedly harsh winter led to higher payouts for burst pipes and water tanks.
Under the leadership of Dame Amanda Blanc, Aviva has focused on divesting overseas operations and expanding its UK and Ireland businesses through acquisitions. Direct Line and Aviva currently rank as the UK’s second- and third-largest motor insurers, respectively.
Despite its struggles, Direct Line remains optimistic about its standalone prospects. The company stated:
“The board of Direct Line remains confident in Direct Line’s prospects as a standalone company and continues to believe in the capabilities of the newly established leadership team to execute the announced strategy. That said, the board has carefully evaluated the proposal, consulted with shareholders, and concluded that the offer is at a value it would be inclined to recommend.”
Aviva has until 5 p.m. on Christmas Day to formalize its bid, which includes 129.7p per share in cash, a 5p dividend payable before the deal closes, and 0.2867 Aviva shares for each Direct Line share. If the deal is finalized, Direct Line shareholders will hold approximately 12.5% of the combined entity.
