- Price raised 10% to 275p/share
- Obvious synergies between companies
- Could lead to ‘more rational pricing’
Shareholders in insurer Direct Line (DLG) enjoyed a small lift in the value of their holdings heading into the weekend after the firm received a raised takeover offer from larger rival Aviva (AV.).
Direct Line shares climbed 16p or 7% to 252p, some 25p or 10% shy of the 275p price implied by the cash and shares offer.
WIN-WIN SCENARIO
The two firms put out a joint statement saying they had reached a preliminary agreement on the terms, which are 129.7p in cash per Direct Line share plus 0.2867 new Aviva shares and up to 5p per share of dividend payments.
Based on an Aviva share price of 489.3p, the deal would value Direct Line shares at 275p and value the whole company at £3.6 billion, a 73% premium to its valuation on 27 November before Aviva made its initial approach at 250p per share.
The board of Direct Line said it was still ‘confident’ of its prospects as a standalone company but was ‘minded to recommend’ a firm offer if one were made.
Analysts at Berenberg suggested the raised offer showed Aviva sees ‘substantial benefits’ in a combination in terms of economies of scale and synergies, beyond which joining forces in UK retail motor and house insurance would significantly increase market concentration which should in theory lead to ‘more rational pricing’.
