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British insurance group Aviva has raised its offer to buy Direct Line, which would value its smaller rival at around £3.4bn, just days after the first approach was rejected.
Aviva is offering to pay about 261p per Direct Line share, compared with an initial offer of 250p last week, which valued the company at 3.3 billion pounds, according to people familiar with the situation.
Direct Line and Aviva declined to comment.
Direct Line’s board, led by chairman Danuta Gray, rejected Aviva’s first approach last month, saying it was a “highly opportunistic” and “significantly” undervalued business. Aviva’s optional offer consisted of 112.5p in cash and 0.282 new Aviva shares.
The takeover of Aviva, one of Britain’s biggest insurers, would create an insurance group that would dominate more than a fifth of the car market and 15 percent of the home sector, in a deal that could attract the attention of the competition regulator and insurance authorities. at the Bank of England.
Aviva’s approach, led by chief executive Amanda Blanc, is the fourth recent attempt to buy Direct Line after Belgian insurer Ageas made two bids earlier this year that were rejected. The latest offer from Aviva was first reported by Bloomberg News.
The latest offer represented an almost 11 percent premium to Direct Line’s closing share price in London on Thursday of 236 pence.
Aviva’s approach comes after two difficult years for Direct Line. Former chief executive Penny James resigned at the start of 2023 shortly after the insurer issued profit warnings and scrapped a dividend that has since been reinstated.
Adam Winslow, chief executive of Direct Line and former chief executive of Aviva, is leading the turnaround of the business, announcing a strategic refresh in July to focus on car, home, commercial business and car breakdown cover. He reiterated the group’s aim to save at least £100m by the end of 2025.
The latest development comes after the Financial Times reported that Direct Line’s leading shareholders were pending a higher takeover bid from Aviva.
Analysts believe Aviva could offer an even higher price. Berenberg said in a note earlier this week that Aviva had “enough scope” to raise its rate and suggested the insurer could improve its offer to 275p.
Several key investors in Direct Line said they supported the board’s decision to reject Aviva’s original offer of 250p per share as too low. Aviva has too appealed directly to the shareholders of his targettrying to convince them of the value of their approach; a move that could pave the way for a hostile takeover.
Aviva and Direct Line share a number of major investors, including Schroders, Redwheel and M&G.
Additional reporting by Ivan Levingston in London
