Aviva has announced a £3.6 billion takeover deal with Direct Line, one of the UK’s leading motor insurance companies. Aviva, one of the UK’s largest insurance providers, has a long history of offering a wide range of products, including life, general, and health insurance while Direct Line, founded in 1985, is a leading motor and home insurance specialist. Together, these two giants are set to reshape the UK insurance landscape.
Under the terms of the agreement, Aviva will pay 275p per share, solidifying its strategy to accelerate growth in the UK market.
If approved by shareholders, the acquisition will create a leading entity in UK home and motor insurance, with the combined group expected to hold more than 20% of the home and motor insurance market and a market capitalisation of about £16.6 billion.
Shareholders in Direct Line would own approximately 12.5% of the issued and to-be-issued share capital of Aviva, further integrating the two companies. The deal was executed relatively rapidly, with the process taking only eight days from start to finish. Aviva initially made a bid of 250p per share; however, the board of Direct Line rejected the offer, believing they undervalued the company. Subsequent negotiations saw Aviva raise its offer to 261p per share before the final agreement was reached at 275p per share. Aviva’s willingness to increase its bid helped to avoid a hostile takeover. Following the announcement of the deal, Direct Line’s share price surged by roughly 40%.
Dame Amanda Blanc, who became CEO of Aviva in 2020, has moved quickly to achieve strategic objectives, selling eight businesses in 18 months. Aviva had previously considered a possible deal with UK insurance company esure owned by private equity group Bain Capital, but shifted its focus to Direct Line. This acquisition underscores Aviva’s commitment to consolidating its leadership in the UK insurance sector.
Direct Line’s share price had been under pressure after a challenging couple of years and several profit warnings, leaving it vulnerable to takeover bids, including two approaches from Belgian insurer Ageas earlier this year, with a bid of 239p per share. In early December, Direct Line announced 550 job losses as part of its cost-saving strategy.
Despite these challenges, Direct Line expressed confidence in the company’s prospects as a standalone business and highlighted the capabilities of its newly established leadership team.
The proposed takeover is expected to attract scrutiny from regulatory bodies including the Bank of England’s Prudential Regulation Authority and the Competition and Markets Authority. With the combined group poised to hold more than 20% of the UK home and motor insurance market, some analysts believe regulators may examine the deal closely for potential competition concerns.
Aviva and Direct Line engaged leading financial advisors to navigate the negotiations. Aviva was advised by Citigroup and Goldman Sachs, while Direct Line’s advisors included Morgan Stanley, Robey Warshaw, and RBC.
Aviva has until 25th December to make a firm offer with Direct Line’s shareholders subsequently voting on the proposal. If the deal is approved, it will represent one of the most significant consolidations in the UK insurance market in recent years, strengthening Aviva’s market position and reinforcing its long-term growth strategy.
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