Tensions flair at Direct Line following Aviva takeover bid

A battle is brewing within Direct Line over whether to accept any further takeover bids from Aviva, as its CEO seeks more time to turn the business around.

Talking to the Sunday Times following the rejected £3.3bn bid from Aviva last week, Direct Line CEO Adam Winslow urged shareholders to back his turnaround plan over accepting the deal from Aviva.

“We’re making excellent progress in the early stages of a significant turnaround, with a refreshed and world-class leadership team in place to deliver the strategy,” he said.

“People like to talk Direct Line down, but since arriving as CEO in March, and having received two takeover bids already, it’s clear we’re a very attractive company.”

Animosity has flared up between the two companies as Direct Line’s CEO, CFO, COO and chief risk officer all recently joined from Aviva.

Over reports of a tense relationship with Aviva CEO Amanda Blanc, Winslow said: “I respect her… she’s doing her job, but I’ve got my job to do, which is to drive value for shareholders”.

The City began bracing for a bidding war last week as speculation has spread that Aviva could mount a hostile takeover attempt, while others have discussed the possibility of a counter-bid from Belgian insurer Ageas.

Direct Line already rebuffed two approaches from 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”.

Rumours have also begun to swirl that Aviva may be contacting Direct Line shareholders directly, urging them to push Direct Line’s board into negotiations.

While the company’s board rejected the offer from Aviva, its founder Peter Wood has said the firm should accept an offer if Aviva raised its bid by 10 per cent.

Meanwhile, analysts have argued that the insurer should accept any further bids, noting that the firm has failed to deliver persistent growth in its core businesses over the last decade.

“The offer exceeds fair value estimates for Direct Line, and given the challenging targets outlined during the Capital Markets Day, accepting this deal, or a higher one, from Aviva makes sense.” said Henry Heathfield, equity analyst at Morningstar.

“Direct Line is a no-moat business with a high uncertainty and poor capital allocation because of continued investments in technology, which have not resulted in a tangible business development that occurred for other firms.”

Other analysts, such as those at Panmure Liberum, have also described the bid as a “good opening offer”.

Under UK takeover rules, Aviva has until Christmas Day to announce an intention to make a firm offer or walk away.