Direct Line Rejects £3.3 Billion Takeover Offer From Aviva

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(Bloomberg) — Direct Line Insurance Group Plc rejected a £3.3 billion ($4.2 billion) takeover bid from Aviva Plc, rejecting its second suitor this year.

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Aviva, listed on the London Stock Exchange, said it had submitted a non-binding proposal to value Direct Line at about 250 pence per share, it said in a statement on Wednesday that confirmed a previous report by Bloomberg News. The price represents a 58% premium to Direct Line’s close on Wednesday.

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“Aviva believes the acquisition of Direct Line will deliver attractive returns for both Aviva and Direct Line shareholders, including unlocking value that cannot be accessed in standalone Direct Line,” it said in the statement. “Aviva believes the acquisition will provide material cost and capital synergies, in addition to Direct Line’s existing cost savings programme.”

Direct Line’s board rejected the proposal on November 26, saying it significantly undervalued the company, and declined to engage further with Aviva, according to the statement. Aviva is offering 112.5p in cash plus 0.282 new Aviva shares for each Direct Line share.

Direct Line said in its own statement on Wednesday that its board considered Aviva’s bid to be “highly opportunistic in nature”. It said its board supports a newly established leadership team and a strategy that expects to “deliver attractive growth in profitability, capital generation and shareholder returns.”

Bloomberg News reported earlier on Wednesday that Aviva had spoken with advisers about a potential acquisition of Direct Line. Direct Line’s shares are down 13% this year, giving the company a market value of around £2.1bn.

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Under UK takeover rules, Aviva has until 5pm local time on December 25 to announce a firm intention to make a bid or withdraw.

Aviva has begun looking for acquisitions again after chief executive Amanda Blank pursued a series of divestments that have downsized the insurer and left it more UK-focused. In March, Aviva said it had entered the Lloyd’s insurance market with the £242m purchase of Probitas. Aviva shares have risen by 13% this year, reaching a value of £13.1bn.

Last year, it agreed to buy Corebridge Financial Inc.’s British security firm AIG Life Ltd. For 460 million pounds sterling. Bloomberg News reported last month that Aviva was among potential suitors who were considering Esure Group Plc, the British home and car insurer backed by Bain Capital.

Direct Line, best known for its UK car insurance offerings, is pursuing an independent path after rejecting a bid from Belgian rival Ageas in March that valued it at around £3.2bn. It said this month it would cut around 550 jobs as part of a turnaround plan aimed at saving £50m next year.

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Bromley, England-based Direct Line sells insurance under its eponymous brand as well as through units including Churchill, Green Flag, Privilege and Darwin Motor Insurance. In addition to auto insurance, it also offers home, travel, pet, and life insurance as well as providing coverage for businesses.

Provided by Citigroup Inc. and Goldman Sachs Group Inc. Advising Aviva on the deal, according to a statement on Wednesday. Direct Line is advised by Morgan Stanley and Robey Warshaw, while its corporate brokers are Morgan Stanley and Royal Bank of Canada.

—With assistance from Ruth David, Pamela Barbaglia, and Aaron Kirchfield.

(Updates with direct line response in fifth paragraph, advisors in last paragraph.)

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