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(Il Sole 24 Ore Radiocor) – Direct Line takes off on the London Stock Exchange, after rejecting a takeover offer from Aviva worth £3.26 billion. The insurance group’s stock gained 40.3%, while its rival’s share price dropped around three points and ended up at the bottom of both the index FT-SE 100 and at the Stoxx Europe 600. It was Aviva who announced, “in response to press rumours”, that have submitted a non-binding offer to the Direct Line board of directors on November 19 “for a possible offer on 100%” of the company. The proposal was, however, rejected on November 26 by Direct Line’s board on the grounds that it “substantially undervalues” the company.
Aviva highlights that the offer amounted to 112.5p in cash and 0.282 Aviva shares for each Direct Line share for a total value of 250 pence per share. This represents a premium of 59.7% to Direct Line’s price on November 18 and 57.5% on November 27. “Aviva believes that the acquisition of Direct Line would be consistent with its strategy to accelerate growth in the UK market and to focus the group more on capital-light lines of business. The acquisition would expand Aviva’s presence on the attractive Personal Lines marketbuilding on its current strength and would create a more efficient platform to serve existing and new customers. Furthermore, the acquisition would allow Direct Line customers to benefit from Aviva’s increased scale and financial strength.”
The transaction would also enable “cost and capital synergies, which would add to the cost reduction program already implemented by Direct Line”, added Aviva, boasting of its good financial health. Direct Line is in the process of reorganization of activitieswith cost-cutting measures, after having rejected an acquisition attempt by the Belgian Ageas in March and at the beginning of November announced the elimination of 550 jobs. It is above all the car division that weighs on the accounts. According to analysts at Panmure Gordon, Direct Line shareholders they would do well to accept the offer of Aviva by 250 pence per share.
Aside from the premium offered and business considerations, according to experts, a higher offer from Aviva remains a possibility and a bidding war cannot be ruled out for the company, given Ageasm’s past interest, but the whole is considered unlikely. Analysts also note that any deal between Aviva and Direct Line would be examined by the UK Antitrustas the combination would make Aviva number one in the home insurance market. Aviva made an operating profit of £1.47 billion in 2023, with premiums of £10.9 billion. Direct Line recorded gross premiums of 3.1 billion, with a gross operating loss of 189.5 million.
