One of the UK’s biggest insurers could become even bigger as Direct Line looks set to accept a sweetened £3.61bn takeover offer from Aviva.
This is not the first time Aviva has attempted to buy Direct Line, which includes the Churchill and Privilege brands. Last month was £3.3bn bid was rejected for being “highly opportunistic” and allegedly “significantly undervaluing the company.”
The offer gives a premium of 73.3% to the value of Direct Line, based on the closing price of its shares on Monday, November 18 – the day before the presentation of the first proposal.
In a statement to shareholders, Direct Line said: “The Direct Line board remains confident in the prospects of Direct Line as a standalone company and continues to be confident in the abilities of the newly established management team to implement the announced strategy. »
It said the board had “carefully considered the proposal with its advisors and consulted with Direct Line shareholders during the offer period” and concluded that “the proposal is at a value that it would be willing to recommend to Direct Line shareholders” if there was “a firm intention to make an offer”.
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If combined, the merged group would hold about a fifth of the auto insurance market.
Working together as a single entity could generate “significant synergies” allowing the companies to cooperate and generate more value together than separately, a joint statement from the insurers said.
The offer is currently only a proposal and the press release specifies that there can be “no certainty” that a firm offer will be made.
Aviva has until Christmas Day to announce its firm intention to make an offer or not make one at all.
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Direct Line shares soared 40% on takeover interest following Aviva’s initial rebuff.
After suffering in the car insurance business, Direct Line rebuffed a £3.17bn takeover attempt by Belgian rival Ageas earlier this year.
It has seen rising claims costs and fierce competition, much of it from online-only players with smaller cost bases.
Earlier this month, Direct Line revealed 550 job cuts as part of a “series of initiatives” designed to cut £50m from its cost base.