In a significant development within the UK insurance sector, Aviva has taken the unprecedented step of directly approaching Direct Line shareholders, potentially setting the stage for a hostile takeover bid. The FTSE 100 insurance heavyweight initiated contact with Direct Line’s shareholders on Thursday, following the board’s dismissal of a £3.3bn takeover proposal.
The outreach to shareholders emerged after Direct Line’s board rejected Aviva’s cash-and-shares offer of 250p per share, labelling it as “highly opportunistic” and “substantially” undervalued. The strategic move by Aviva appears aimed at cultivating shareholder support to pressure the Direct Line board into meaningful negotiations.
The proposed merger would forge an insurance powerhouse commanding over 20% of the motor market and approximately 15% of the home insurance segment. The timing of Aviva’s approach follows a challenging period for Direct Line, which saw the departure of former chief executive Penny James in 2023 amid profit warnings and dividend suspensions.
Market reaction has been notably positive, with Direct Line shares surging 41% to close at 224.4p on Thursday, while Aviva’s shares experienced a modest 2% decline to 479.5p. Industry analysts suggest that an increased offer ranging between 260p to 275p per share might be necessary to secure board approval.
The situation is particularly intriguing given Direct Line’s new chief executive, Adam Winslow, is a former Aviva executive, and both insurers share major institutional investors including Schroders and Redwheel. Under Takeover Code regulations, Aviva faces a deadline of 5pm on December 25 to either formalise their offer or withdraw their interest.
Direct Line maintains strong conviction in its newly established leadership team’s ability to execute a successful turnaround strategy, projecting enhanced profitability and shareholder returns. This marks the third takeover approach Direct Line has faced this year, following two previous bids from Belgian insurer Ageas.
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