Direct Line rejects Aviva’s £3.3bn takeover bid, shares soar

A takeover bid from Aviva signals potential consolidation in the UK insurance market, with investors watching closely.

Direct Line Insurance Group has rejected a £3.3 billion takeover proposal from larger rival Aviva. The rejection has sparked a surge in its share price by over 40% and fuelled speculation of a potential bidding war.

The rejected offer represented a 250p-per-share valuation. This marked a 60% premium to Direct Line’s closing price on 18 November, the day before the proposal was submitted. However, Direct Line’s board described the bid as “highly opportunistic” and claimed it “substantially undervalued” the company.

Background of the bid

This marks the third takeover attempt Direct Line has rebuffed this year. Earlier, the company dismissed offers from Belgian insurer Ageas, culminating in a £3.2 billion bid in March.

Aviva’s proposal followed a challenging period for Direct Line, which has faced rising claim costs and fierce competition in the motor insurance sector, particularly from cost-efficient, online-only players.

Despite its struggles, Direct Line has undertaken significant restructuring efforts, including cost-cutting initiatives and a plan to shed 550 jobs. In a statement, the company emphasised progress towards financial stability and profitability under its turnaround strategy.

Market response

The rejection prompted a rally in Direct Line’s shares, which climbed to over 224p on Thursday, making it one of the biggest gainers on the FTSE 250. Analysts believe the story is far from over, with expectations of a potential counteroffer from Aviva or other interested parties.

Aviva’s perspective

In its statement, Aviva expressed confidence in the strategic benefits of the deal, describing it as a “highly attractive proposal” with “high execution certainty.” The company argued that the offer provided significant returns for both sets of shareholders and allowed Direct Line investors to participate in Aviva’s future growth through the share component of the deal.

Investor speculation

The sharp rise in Direct Line’s share price reflects optimism about a higher offer or an alternate bid. Analysts note that a combination of Aviva and Direct Line would give them a competitive edge in a challenging market. However, Direct Line’s firm rejection suggests its leadership team still very much believes in its standalone strategy.

For now, all eyes remain on whether Aviva will sweeten its offer, or if new bidders will emerge to capitalise on Direct Line’s strategic position.

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Josie Geistfeld Josie is an editor for Claims Media. She welcomes feedback, comments, and opinion at josie.geistfeld@barkerbrooks.co.uk