Direct Line is set to agree to a takeover by its bigger rival Aviva after the FTSE 100 firm returned with a sweetened bid for the company today.
In a joint statement to the market this morning, the two firms said they had struck a deal for the FTSE 100 insurance firm to buy its smaller rival for 275p per share.
The terms of the deal mark a 73 per cent premium on Direct Line’s undisturbed share price before Aviva first announced it was considering a takeover bid last month.
While Direct Line rebuffed Aviva‘s initial bids and said today it “remains confident” in its prospects as a standalone firm, bosses said they were minded to agree to the latest offer.
“The Board of Direct Line has carefully considered the Proposal with its advisers and consulted with Direct Line shareholders during the offer period, and has concluded that the Proposal is at a value that it would be minded to recommend to Direct Line shareholders,” the company said in a statement.
Under the terms of the deal, which Aviva is yet to formalise, Direct Line shareholders would own approximately 12.5 per cent of the issued and to be issued share capital of Aviva.
“The Direct Line Board believes that, in addition to the attractive headline value per share, the combination would provide the opportunity to deliver significant synergies, creating substantial additional value for both sets of shareholders,” the companies said.
Any tie-up between the two would create a newly bolstered insurance giant on London’s markets and comes after a troubling two years for the smaller firm in which it has issued multiple profit warnings.
The combined group would be one of the UK’s largest insurance providers and draw a line under Direct Line’s recent issues.
Direct Line is undertaking a turnaround plan, which it hopes will deliver around £50m in cost savings in 2025. In its third-quarter trading update, released earlier this month, the firm said it was considering cutting around 550 roles as part of its savings programme.
The firm rebuffed two approaches from the Belgian insurer Ageas this year, with the latter valuing the firm at £3.1bn. The board unanimously rejected Ageas’ approach back in March, also describing it as “highly opportunistic”.