Insurer Direct Line has seen shares soar after being thrust into the takeover spotlight once again following a £3.3 billion approach from rival Aviva.
The firm saw its stock surge more than 39% in morning trading on Thursday following Aviva’s announcement after the market closed on Wednesday that it had put forward a possible cash-and-shares bid – worth 250p a share – to buy Direct Line last week.
Direct Line swiftly responded to say it had rebuffed the potential takeover offer, which it said “substantially undervalued” the company.
The board considered the proposal to not reflect the standalone value that can be delivered by the company, and hence considered the possible offer highly opportunistic in nature
FTSE 250-listed Direct Line said: “The board considered the proposal to not reflect the standalone value that can be delivered by the company, and hence considered the possible offer highly opportunistic in nature.”
But experts said Aviva could come back with a higher potential offer.
The bid interest from Aviva comes after Direct Line fended off a £3.1 billion approach from Belgian insurer Ageas in February.
Direct Line is in the middle of a turnaround after being caught on the back foot last year by the soaring cost of claims.
Former boss Penny James stepped down last year in the wake of a profit warning and move to scrap the shareholder dividend.
New boss Adam Winslow has since been leading a revamp plan, which has included cost-cutting and increasing the price of its insurance, but this has come at a cost, with the group having shed hundreds of thousands of own-brand motor policyholders.
Engaging with Aviva to fully explore their offer in more detail would make sense
The firm also revealed plans earlier this month to axe around 550 jobs to help ramp up savings.
Analyst Andreas Van Embden, at Peel Hunt, said he believed the approach from Aviva was “reasonable”, but added that the suitor could come back with a higher possible bid.
“Aviva could be persuaded to sweeten the deal to 260p to 265p a share, which may help satisfy the Direct Line board.”
He also raised some concerns over Direct Line’s plans as a standalone group to boost its performance, saying the firm’s recovery “could be bumpier than anticipated earlier this summer”.
“Engaging with Aviva to fully explore their offer in more detail would make sense,” he said.
The acquisition would expand Aviva's presence in the attractive UK personal lines market, building on its existing strength, and creating a more efficient platform from which to serve existing and new customers
Aviva said on Wednesday that its offer marked a 60% premium to the closing price of Direct Line shares the day before its proposal was put forward.
On confirming the approach, Aviva said: “The acquisition would expand Aviva’s presence in the attractive UK personal lines market, building on its existing strength, and creating a more efficient platform from which to serve existing and new customers.
“In addition, the acquisition would allow Direct Line customers to benefit from Aviva’s breadth, scale and financial strength.”
