Insurance giants Aviva and Direct Line have announced an agreement for the takeover of Direct Line by Aviva after a revised bid was accepted by Direct Line.
The proposed deal values Direct Line at 275p per share, and comprises three elements: a cash component of 129.7p per Direct Line share, which Aviva plans to fund through its existing cash resources; an equity component of 0.2867 new Aviva shares per Direct Line share; and dividend payments totalling up to 5p per Direct Line share, subject to board approval.
The offer presents a significant short-term uplift for Direct Line shareholders, representing a 73.3% increase over Direct Line’s closing share price on November 27, 2024, and a 49.7% premium compared to the company’s six-month volume-weighted average share price leading up to that date. Upon completion of the transaction, Direct Line shareholders would hold approximately 12.5% of Aviva’s issued share capital.
Direct Line rebuffed an initial offer totalling 250p per Direct Line share and has secured an additional 10% for its shareholders.
Direct Line said that while it maintains confidence in Direct Line’s standalone prospects and its new leadership team, it recognises the potential value creation opportunity presented by the combination. The proposed merger is expected to generate substantial synergies, potentially delivering additional value for shareholders of both companies.
“Direct Line has finally relented, accepting Aviva’s 275p per share offer after resisting an earlier proposal in recent weeks,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown
“The deal, a mix of cash, shares, and a small dividend, delivers a 73% premium to Direct Line’s pre-offer price. Direct Line’s board had been holding out, insisting they could make it on their own. But even they had to admit that Aviva’s proposal is a golden ticket they’d struggle to match independently. Confidence in their solo strategy aside, this offer was just too good to pass up.
“Let’s not sugarcoat it: Direct Line has hit some serious potholes lately. Market share has been sliding, underwriting hasn’t exactly been flawless, and regulators have been knocking on the door. But with a fresh leadership team at the wheel, the company has been working on a bold turnaround plan. For Aviva, the price is pushing the limit of good value but snapping up Direct Line could be a strategic jackpot. It cements their place as a heavyweight in the UK home and motor insurance markets and brings fresh opportunities to steer Direct Line’s transformation, while squeezing out efficiency gains from their combined scale.”