Aviva has lastly struck a deal to amass fellow insurer Direct Line for £3.7billion, forward of a Christmas Day deadline.
Britain’s largest life insurer made a £3.3billion strategy in November, however Direct Line turned this down on the grounds that it ‘considerably undervalued’ the corporate.
Having had till 5pm on Christmas Day to agree a concrete proposal, Direct Line’s board stated it will help the upper bid.
It has now accepted a suggestion whereby Direct Line traders will obtain 0.2867 new Aviva shares, 129.7 pence in money and a dividend of as much as 5p per share for each Direct Line share they maintain.
This represents a 73.5 per cent premium to Direct Line’s closing share worth on 27 November, the final day previous to the supply interval beginning.
As soon as the deal is finalised, Aviva traders will personal about 87.5 per cent of the enlarged enterprise, whereas Direct Line shareholders will maintain the remaining 12.5 per cent.
Thumbs up: Direct Line has accepted a £3.7billion supply from fellow insurer Aviva
Aviva believes the takeover will bolster its presence within the UK private traces market, which generated at the least £26billion of gross written premiums final 12 months.
The FTSE 100 group additionally expects it to create ‘higher outcomes’ for purchasers, comparable to aggressive pricing, better know-how funding and quicker claims funds.
Since Dame Amanda Blanc grew to become Aviva’s chief govt in 2020, the corporate has sought to simplify operations by specializing in its core markets: the UK, Canada and the Republic of Eire.
On the identical time, Aviva has delivered vital payouts for its shareholders, which have been funded by promoting some worldwide divisions, and selectively pursued takeover offers.
Blanc stated the Direct Line deal ‘builds on our observe file of delivering 4 years of sturdy monetary efficiency and, in step with our technique, it accelerates our development in capital-light enterprise’.
Direct Line rejected quite a few takeover provides earlier this 12 months from Belgian insurance coverage big Ageas, with the latest valuing the enterprise at £3.2billion.
Ageas first approached the agency simply earlier than Adam Winslow took over from Penny James as Direct Line’s chief govt in March, having beforehand been head of Aviva’s UK and Eire insurance coverage operations.
Below James, Direct Line struggled with inflation and provide chain points rising motor restore prices, and new guidelines stopping insurance coverage corporations from ‘worth strolling’ – imposing increased premiums on loyal prospects.
Winslow is spearheading a turnaround technique at Direct Line that features rising coverage gross sales and a £100million cost-cutting programme.
His actions look like paying off, with the corporate reporting a £61.6million pre-tax revenue for the primary six months of 2024, in comparison with a £76.3million over the identical interval final 12 months.
But Direct Line bosses stated the agency’s share worth and valuation weren’t ‘appropriately reflecting the potential for the enterprise,’ pointing to the group’s shares closing at a 12-month low previous to Aviva’s preliminary proposal.
Danuta Grey, its chair, stated: ‘Direct Line is within the early levels of an intensive turnaround, and it believes the supply permits Direct Line shareholders to understand the worth of their funding within the close to time period.’
Direct Line Insurance coverage Group shares have been 2.8 per cent increased at 250p on Monday morning. Aviva shares have been 0.1 per cent down at 456.6p.
Matt Britzman, senior fairness analyst at Hargreaves Lansdown, stated: ‘Whereas the brand new administration crew has been working to regular the vessel, even they could not deny that Aviva’s supply was the golden ticket they’d wrestle to duplicate on their very own.
‘Although they’ve expressed confidence of their unbiased technique, this proposal was just too compelling to move up.’
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