Aviva to acquire Direct Line for $4.6bn

February 2025 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

February 2025 Issue

UK insurer Aviva has reached a preliminary agreement with Direct Line which would see it acquire its smaller rival in a sweetened cash and stock deal worth around $4.6bn.

Under the terms of the deal, which will create the UK’s largest home and motor insurer, Aviva will pay 275p per share to acquire Direct line, a 73 percent premium to Direct Line’s pre-offer share price and 49.7 percent premium to the company’s average price over the previous six months.

Combined, Direct Line and Aviva would become the UK’s largest motor insurer – surpassing larger competitor Admiral. The deal is expected to double Aviva’s share in the motor insurance market upon closure.

According to a joint statement announcing the deal, the board of Direct Line noted that while it remains confident in Direct Line’s prospects as a standalone company and continues to have conviction in the capabilities of the newly established leadership team to deliver its previously announced strategy, it carefully considered the proposal with its advisers and consulted with Direct Line shareholders during the offer period, and has concluded that the proposal is at a value that it would be minded to recommend to Direct Line shareholders should a firm intention to make an offer pursuant to Rule 2.7 of the Code be announced on such financial terms, subject to agreement of all other terms and conditions of an offer and completion of reciprocal customary due diligence.

Once completed, Direct Line shareholders would own approximately 12.5 percent of the issued and to be issued share capital of Aviva. The Direct Line board believes that, in addition to the attractive headline value per share, the combination would provide the opportunity to deliver significant synergies, creating substantial additional value for both sets of shareholders.

Aviva had made two previous bids for Direct Line, however those offers were rejected. In November, Aviva had its first offer, at 250p per share, rejected before raising its offer to 261p a share. Direct Line’s board, led by chair Danuta Gray, rejected Aviva’s first approach saying it was “highly opportunistic” and “substantially” undervalued the business.

Under UK takeover rules, Aviva had until 5pm on Christmas Day to table a firm offer for Direct Line – as the current one is still preliminary – or walk away from the deal, which is expected to attract regulatory scrutiny from the competition watchdog and insurance supervisors at the Bank of England.

Direct Line, which employs over 9000 people, has faced challenges including job cuts and customer losses in recent years. In December, it announced plans to cut 550 jobs as part of a turnaround plan aimed at saving £50m in 2025. It lost almost 400,000 car insurance customers throughout 2024. Adam Winslow joined the company as its chief executive in March 2024 from Aviva, where he ran the general insurance business in the UK and Ireland. In December, prior to the agreement with Aviva, Mr Winslow claimed that his new management team was “making excellent progress in the early stages of a significant turnaround”. He argued that the company, which owns Churchill, Green Flag and Darwin, had “great brands” and strong prospects on its own.

In February and March 2023, Direct Line rejected two takeover approaches from Belgian insurer Ageas, the second valuing it at £3.2bn, or 239p a share, saying it was “uncertain and unattractive” for shareholders.

Aviva has been searching for potential acquisitions for some time, and particularly after the company’s chief executive, Amanda Blanc, pursued a series of divestments that slimmed down the insurer and left it more focused on the UK. In March 2024, Aviva said it was entering the Lloyd’s insurance market through a £242m purchase of Probitas. In 2023, Aviva agreed to buy Corebridge Financial Inc.’s UK protection business AIG Life Ltd. for £460m. Aviva is also among potential suitors that have been studying Esure Group Plc, the British home and motor insurance firm backed by Bain Capital.

Richard Summerfield