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British insurance group Aviva has raised its bid to buy Direct Line in a move that would value its smaller rival at around £3.4 billion, just days after it the first access is denied.
Aviva is proposing to pay about 261 pence per share for Direct Line, up from its initial offer of 250 pence 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 “highly opportunistic” and “substantially” undervalued the business. Aviva’s non-binding offer consisted of 112.5p in cash and 0.282 new Aviva shares.
A takeover by Aviva, one of the UK’s biggest insurers, would create an insurance group that would dominate more than a fifth of the car market and 15 percent of the domestic sector, in a deal that could attract the attention of competition regulators and the Bank of England’s insurance watchdog.
The approach by Aviva, led by chief executive Amanda Blanc, represents the fourth recent attempt to buy Direct Line after Belgian insurer Ageas made two bids earlier this year, which were rejected. The latest offer from Aviva was first reported by Bloomberg News.
The latest proposal represented an almost 11 per cent premium to Direct Line’s London closing share price of 236 pence on Thursday.
Aviva’s approach comes after two difficult years for Direct Line. Former chief executive Penny James stepped down in early 2023 shortly after the insurer issued profit warnings and scrapped its dividend, which 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 update in July to focus on the motor, home, commercial and car breakdown businesses. He reiterated the group’s aim to achieve at least £100m of cost savings by the end of 2025.
The latest development comes after the Financial Times reported that Direct Line’s leading shareholders were asking for a higher offer to take over from Aviva.
Analysts believe that Aviva could still offer a higher price. Berenberg said in a note earlier this week that Aviva had “sufficient capacity” to raise its offer 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 proposal of 250 pence per share because it was too low. Aviva has too appealed directly to the shareholders of his targetin an attempt to convince them of the merits of his 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
