- 250p offer equals a 60% premium
- Board calls it ‘highly opportunistic’
- Analyst suggests 270p valuation
Motor and home insurer Direct Line Insurance (DLG) received its third bid of 2024 with larger UK rival Aviva (AV.) pitching a 250p cash-and-shares after the closing bell last night.
Direct Line shares jumped 59p or 37% to 218p, more than reversing their losses year-to-date and leaving them at a six-month high.
THIRD TIME UNLUCKY
Direct Line has already received two cash and shares bids this year from Benelux insurer Ageas (AGS:EBR), initially valuing the business at 233p then 237p at the second attempt.
In both cases, the board roundly rejected the price on the basis it undervalued the business and its future prospects, and Aviva fared no better when it pitched its offer, with Direct Line saying its approach was ‘highly opportunistic and substantially undervalued the company’.
Aviva was offering 112.5p in cash and 0.282 new Aviva shares for every Direct Line share, which equated to a premium of almost 60% over the closing price last night and valued the whole business at £3.3 billion.
However, as we have explained previously, while a cash-and-shares offer may suit the buyer, because issuing new shares reduces their costs, it doesn’t necessarily suit investors in the target company.
NOT OVER YET?
That being said, analyst Philip Kett at Jefferies suggested if Direct Line was prepared to engage with Aviva rather than pull up the drawbridge then a higher bid might be forthcoming.
‘Previously, we suggested that the capital and expense synergies available to an acquirer mean that an offer of at least 270p would be more realistic’, observed Kett.
Either way, Aviva now has until 5pm on Christmas Day to either announce ifr it intends to make an offer or not, so there may yet be an extra present under the tree for Direct Line shareholders.
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