Aviva set for £3.6bn Direct Line takeover

Direct Line is set to agree to a £3.6bn takeover by its bigger rival Aviva, after the FTSE 100 firm returned with a sweetened bid for the company today.

In a joint statement to the market this morning, the two firms said they had struck the outlines of a deal in which Aviva will pay 275p per share for its smaller rival.

The terms of the deal mark a 73 per cent premium on Direct Line’s undisturbed share price before Aviva first announced it was considering a takeover bid last month.

While Direct Line rebuffed Aviva‘s initial bids and said today it “remains confident” in its prospects as a standalone firm, bosses said they were minded to agree to the latest offer.

“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,” the company said in a statement.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said that Aviva’s revised offer was “just too good to pass up”.

“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,” he said.

Under the terms of the deal, which Aviva is yet to formalise, 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 companies said.

Abid Hussain, an analyst at Panmure Liberum, said the revised offer was “good for both sets of shareholders – Aviva has not overpaid and DLG shareholders crystalize an attractive return”.

Any tie-up between the two would create an insurance giant worth nearly £17bn and comes after a troubling two years for the smaller firm in which it has issued multiple profit warnings.

In its third-quarter trading update, released last month, Direct Line said it was considering cutting around 550 roles as part of its savings programme, which will deliver around £50m in savings next year.

The deal comes after Direct Line rebuffed two approaches from the Belgian insurer Ageas this year, with the latter valuing the firm at £3.1bn. The board unanimously rejected Ageas’ approach back in March, describing it as “highly opportunistic”.