Aviva agrees £3.7bn deal to acquire Direct Line, forming a UK motor insurance powerhouse

Aviva has entered into a definitive agreement to acquire Direct Line for £3.7bn, creating one of Britain’s largest motor insurers. The FTSE 100 insurer will pay 275 pence per share for the FTSE 250 company, representing a 73.3 per cent premium to Direct Line’s share price before the talks emerged in November.

The acquisition is scheduled to be completed by the middle of next year and will also create a leading home insurance business and is expected to deliver cost savings of around £125 million. However, the resulting merger is expected to put nearly 2,000 jobs at risk. Aviva says it aims to address some redundancies through existing vacancies and redeployment opportunities across the combined group.

Danuta Gray, chairman of Direct Line, said the offer delivered “significant value” for shareholders, citing the company’s well-established brands, strong customer focus and skilled workforce. Once merged, Aviva will go head to head with Admiral in the highly competitive car insurance market, while also consolidating its position as the UK’s largest home insurer.

Aviva CEO Amanda Blank said the deal accelerates its strategy to build more capital-light business lines. She stressed the strong fit in how the two companies serve clients, adding that the expanded group will offer “competitive pricing, an improved claims experience and better service.”

Having sold eight international operations since 2020, Aviva has refocused its portfolio on the UK, Ireland and Canada. Its surprise approach to Direct Line last month also included bids for Churchill and Green Flag, both part of Direct Line’s portfolio of brands.

The acquisition follows a difficult period for Direct Line, which was hit by a series of profit warnings in 2022 and 2023 amid rising car insurance claims. A previous £3.2bn bid from Belgian insurer Ageas fell through last year, just months after Direct Line appointed Adam Winslow, formerly of Aviva, as its chief executive.

Aviva expects the combined entity to boost earnings per share by around 10 per cent once targeted cost savings are achieved. It plans to raise its dividend by a mid-single-digit percentage after the deal closes; At present, Aviva has a yield of 7.4 per cent, which is among the highest in the FTSE 100.

Under the terms of the deal, Direct Line shareholders will receive a combination of cash and shares: 0.2867 new Aviva shares, 129.7p in cash, and up to 5p in dividends. Aviva will own approximately 87.5% of the newly combined company upon completion.

Aviva shares closed up 1.1 percent at 462 pence, while Direct Line shares rose 3.8 percent to 252 pence.