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Direct Line has rejected a preliminary £3.1bn takeover offer from Belgian insurer Ageas, as the UK motor insurer attempts a turnaround after a string of profit warnings hit its share price.
Ageas said on Wednesday it was examining a possible offer for the company — made up of cash and its own newly issued stock — amounting to an implied value of 233p per Direct Line share, a premium of 43 per cent to the UK group’s closing price on Tuesday.
But Direct Line responded to the announcement with a board statement, saying that it had rejected a “highly conditional, non-binding indicative proposal” on these terms at the end of January.
The board said the offer was “uncertain, unattractive, and . . . significantly undervalued Direct Line Group and its future prospects while also being highly opportunistic in nature”. It advised shareholders to take no action in relation to the possible offer.
The Ageas announcement made no mention of the earlier rejection, which was first reported on Wednesday by Bloomberg.
The news comes just two days before Adam Winslow starts as Direct Line’s new chief executive and faces the challenge of turning around the business after a bruising 18 months.
Penny James stepped down as chief just over a year ago after the group scrapped its dividend following a period of rampant inflation in motor claims. It has since taken steps to boost its balance sheet, including agreeing a £520mn sale of its brokered commercial insurance unit last year.
Direct Line’s share price rose as much as 29 per cent following the announcement on Wednesday, while Ageas’s fell almost 3 per cent.
Brussels-based Ageas said a deal would strengthen its position in the European market and help it rebalance towards non-life insurance business.
Analysts at Jefferies said the potential tie-up “makes sense”, arguing that Ageas and Direct Line’s combined share of the UK insurance market would be likely to provide cost savings but without worrying competition regulators.
It would be the latest in a series of takeovers of UK insurers in recent years. Hastings shareholders received a premium of 47 per cent to its share price when it was taken over in 2020, and Esure secured a 37 per cent premium two years earlier.
Ageas has 44,000 employees in 13 countries. Its existing UK operation is the sixth largest in car and home insurance, according to the company.
In its statement, Ageas said it was “confident in the underlying attractiveness and future opportunities” of the UK personal insurance sector, despite a difficult time for the industry, which has faced high inflation in claims costs.
Some in the market have expected takeover interest as Direct Line’s valuation has fallen: its forward price-to-earnings ratio dropped to almost seven times last year from a 10-year average of above 11 times, according to Bloomberg data.
Conditions in the UK insurance sector are now improving, with the cost of motor cover having risen to an all-time high.
Ageas said that over the past year in the UK “claims patterns and frequency have stabilised, while an evolution towards a healthier and more predictable market is being observed thanks to developing regulatory clarity and pricing practice changes”.
Direct Line is due to publish its 2023 results at the end of next month.
