Aviva PLC on Monday sad it has agreed a £3.7 billion takeover of car and home insurer Direct Line Insurance Group PLC.

The cash and shares offer values each Direct Line share at 275 pence.

They were trading 3.0% higher at 250.40p each in London on Monday morning. Aviva was down 0.1% at 456.90p for a market value of £12.24 billion. The wider FTSE 100 was down 0.1%.

Aviva made an initial 250p per share approach for Direct Line back in November. The insurer then sweetened the bid to 275p per share in early December.

Direct Line shareholders will receive 0.2867 of an Aviva share, 129.7p in cash, and up to 5p in dividends payments for each Direct Line share held.

Because of the share element, Direct Line shareholders will hold 12.5% of the enlarged group. Both companies are based in London.

Aviva Chief Executive Amanda Blanc said the deal is ‘excellent news’ for the customers and shareholders of Aviva and Direct Line.

‘It builds on our track record of delivering four years of strong financial performance and, in line with our strategy, it accelerates our growth in capital light business.’

Direct Line Chair Danuta Gray said the offer delivers ‘significant value’ for shareholders.

‘The board of Direct Line has been very pleased with the progress made by its new management team, but Direct Line is in the early stages of an extensive turnaround, and it believes the offer allows Direct Line shareholders to realise the value of their investment in the near term.’

Aviva said the combination would build on its ‘strong momentum’.

Aviva expects earnings per share accretion of around 10% once pretax cost synergies of £125 million are fully realised, with underlying EPS accretion expected from the first full year post-completion.

The company said the deal would accelerate its capital-light strategy, surpassing the existing ambition of generating 70% of operating profit from capital-light businesses by 2026.

Aviva said it currently intends to declare a mid-single digit percentage uplift in the dividend per share following completion.

‘Aviva further intends to maintain the current guidance of mid-single digit growth in the cash cost of the dividend from this rebased level,’ it added.

Aviva expects its solvency II shareholder cover ratio to remain at the upper end of the working range, with upside from ‘material’ capital synergies over time.

The acquisition is not expected to impact the Aviva’s credit ratings. The firm expects centre liquidity to remain above £1 billion, in line with its capital management framework.

Direct Line said it believed the progress made in its turnaround strategy was not reflected in the share price.

As a result, the firm concluded that the bid delivers an ‘attractive valuation’ of Direct Line today ‘when taking into account the risks inherent in a multi-year turnaround and the prevailing market backdrop.’

Copyright 2024 Alliance News Ltd. All Rights Reserved.