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UK insurance group Aviva has raised its offer to buy Direct Line in a move that would value its smaller rival at about £3.4bn, just days after its first approach was rejected.
Aviva is proposing to pay about 261p a share for Direct Line, up from its first offer last week of 250p, which valued the company at £3.3bn, according to people familiar with the situation.
Direct Line and Aviva declined to comment.
Direct Line’s board, led by chair Danuta Gray, rejected Aviva’s first approach last month, saying it was “highly opportunistic” and “substantially” undervalued the business. Aviva’s non-binding offer was made up of 112.5 pence in cash and 0.282 new Aviva shares.
A takeover by Aviva, one of the UK’s largest insurers, would create an insurance group dominating more than a fifth of the motor market and 15 per cent of the home sector, in a deal that could attract the attention of the competition regulator and insurance supervisors at the Bank of England.
The approach from Aviva, led by chief executive Amanda Blanc, marks the fourth recent attempt to acquire Direct Line after Belgian insurer Ageas made two offers earlier this year, which were rejected. The latest offer from Aviva was first reported by Bloomberg News.
The latest proposal represented a near 11 per cent premium on Direct Line’s closing share price in London on Thursday of 236p.
Aviva’s approach comes after a tough two years for Direct Line. Former chief executive Penny James stepped down in early 2023 shortly after the insurer issued profit warnings and scrapped its dividend, which has since been reinstated.
Adam Winslow, chief executive of Direct Line and a former Aviva executive, is leading a turnaround of the business, announcing in July a strategic update to focus on motor, home, commercial business and car breakdown cover. He reiterated the group’s aim to make at least £100mn in cost savings by the end of 2025.
The latest development comes after the Financial Times reported that leading Direct Line shareholders were holding out for a higher takeover offer from Aviva.
Analysts believe Aviva could offer a higher price still. Berenberg said in a note earlier this week that Aviva had “ample capacity” to raise its bid and suggested the insurer could improve its offer to 275p.
Several crucial investors in Direct Line had said they supported the board’s decision to dismiss Aviva’s original 250p a share proposal for being too low. Aviva has also appealed directly to its target’s shareholders, in an attempt to persuade them of the merit of its approach; a move that could pave the way for a hostile takeover.
Aviva and Direct Line share a number of large investors, including Schroders, Redwheel and M&G.
Additional reporting by Ivan Levingston in London
