Aviva set to buy Direct Line as insurance giant prepares for £3.6bn deal

Direct Line is set to return a £3.6bn takeover by Aviva at a valuation of around 75 per cent above its previous share price, after the insurer’s initial offer was rejected.

Shareholders were told on Friday that the board would recommend a cash-and-shares offer valuing Direct Line at 275p per share if Aviva makes a formal offer, which it has rejected. . Aviva’s ‘most relevant’ proposal of 250p per session last week.

The offer includes 129.7p cash, 0.2867 new Aviva shares and dividends of ‘up to’ 5p per Direct Line share in aggregate, representing a 73.3 per cent premium to its closing price before it airs on November 27.

The pair have reached an initial agreement on the deal, which will see Direct Line shareholders own 12.5 percent of the giant group.

But Aviva must confirm the offer by December 25 or walk away.

Direct Line’s board says it is ‘confident’ in the firm’s prospects as a space business and remains confident in its leadership and strategy.

However, Direct Line says the offer may ‘depend on the value it intends to recommend’.

It would mark the insurer’s third bid in less than 12 months, with Cable TV successfully fending off an attempt to take over Belgian rival Ageas earlier this year.

The offer comes just weeks after Direct Line boss Adam Winslow, who took over in early March, said the business would cut 550 jobs as part of a £100million cost saving scheme to save its stock.

Aviva believes the deal makes ‘strong strategic and financial sense’, but the Direct Line board admits it will ‘secure important relationships’ and create ‘significant added value for both groups of shareholders’ ‘.

However, some scholars think that the iTaking out insurance can result in higher bills for consumers.

Cash has helped to move Straight Line shares up nearly 30 per cent since the start of the year to 237.8p as of Thursday’s close. However, they have lost more than 20 percent in the last five years.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: ‘Direct Line has hit some big holes lately.

‘Market share is declining, the underwriting is not perfect, and the managers are knocking on the door.

‘But with a new leadership team at the wheel, the company is working on a bold turnaround plan.

‘For Aviva, the price is pushing the limit of good value but the acquisition of Line Line could be a strategic investment.

‘It will cement their place as a heavyweight in the home and motor insurance markets and bring new opportunities to drive Direct Line’s transformation, while driving positive results from each ‘