Aviva Plans £3.61B Deal With Direct Line, Making UK’s Largest Motor Insurer

This deal would make Direct Line the largest home and motor insurer in the United Kingdom.

British insurer Aviva has agreed to buy its smaller competitor Direct Line in a deal worth £3.61 billion ($4.60 billion), paid through cash and stock.

Direct Line is a company established in Bromley, England. It offers insurance under its eponymous brand as well as through Churchill, Green Flag, Privilege, and Darwin Motor Insurance. In addition to life and auto insurance, it also provides business insurance for home, vacation, and pets.

This deal would lead to the creation of the largest home and motor insurer in the United Kingdom.

The two companies announced in the joint statement that a preliminary agreement had been established, and the Direct Line was set to recommend a takeover by Aviva if a former offer is made by its bigger rival.

They released a statement on Friday that states that the London-listed company raised its offer in the latest negotiations with Direct Line to 275 pence per share. The cash and stock agreement would involve Aviva issuing new shares and providing dividend payments to Direct Line shareholders.

The deal would create a London-listed insurer worth almost 16.65 billion pounds ($21.23 billion), bigger than Legal & and slightly behind No. 1 Prudential in market value.

The deal would be CEO Amanda Blanc’s biggest acquisition to date as she hopes to grow in the main markets like Britain, Canada, and Ireland after selling many foreign assets to simply the business and increase its financial position.

Direct Line announced that if they make a firm offer, the board would likely support the proposal to its shareholders. This agreement would mean the motor insurer is open to a buyer after months of resisting a takeover.

In a statement to its clients, analysts from Panmure Liberum, the UK-based investment bank, said the revised bid is a good deal for all the parties involved.

They suggested that Aviva could have made a higher deal while considering the possible expenses and capital synergies. The deal would also provide attractive multiples for the Direct Line shareholders.

Direct Line shares increased by 8.5% in London, whereas Aviva stock remained broadly unchanged.

Aviva increased its initial offer for Direct Line to around 261 pence per share. Its initial stock and cash offer was rejected as opportunistic. It was for 250 pence per share, or £3.3 billion.

After the acquisition, Aviva’s share in the market would double.

According to United Kingdom takeover rules, Aviva must make a firm intention to make an offer or withdraw by 5 PM local time by December 25.

Aviva has started searching for an acquisition after chief executive Amanda Blac pursued a series of divestments that would streamline the insurer and allow it to focus more on the UK market.

In March, Aviva announced that they entered the Lloyd’s insurance market by acquiring Probitas for £242 million. Aviva’s shares have increased by 13% this year, bringing its total valuation to £13.1 billion.

It agreed to pay £460 million last year to buy AIG Life Ltd., a UK protection company owned by Corebridge Financial Inc. Aviva is one of the potential suitors that have been researching Esure Group Plc, the British home and motor insurance firm supported by Bain Capital.

Direct Line has been following an independent path after rejecting an offer from Belgian competitor Ageas in March, valued at almost £3.2 billion.

Last month, it stated that it was planning to lay off around 550 employees as part of a turnover strategy aimed at saving 50 million next year.has context menuhas context menu