Aviva has agreed a deal to acquire Direct Line in a £3.7 billion cash-and-stock deal, a move that will create the UK’s largest home and motor insurer.
Under the terms of the £3.7 billion new deal, for each Direct Line share held, shareholders will receive 0.2867 new Aviva shares, 129.7 pence in cash and up to 5 pence in the form of dividend, according to the announcement.
Aviva shareholders will hold the majority of the company’s shares 87.5%, while Direct Line shareholders will hold a much smaller portion, 12.5%.
Direct Line turned down Aviva’s £3.28 billion bid back in November. Direct Line rejected this initial proposal stating that it did not adequately reflects the firm’s standalone value, describing the offer as “highly opportunistic” and not in line with its long-term potential.
A preliminary acquisition agreement was reached between the two insurers in early December, with Direct Line shares valued at 275 pence each, resulting in a total deal worth £3.6 billion.
In its rationale for the initial offer, Aviva stated that acquiring Direct Line was motivated by the belief that the deal would be mutually beneficial for shareholders of both companies.
Aviva argued that the acquisition would unlock value for Direct Line that it could not achieve on a standalone basis, while also generating significant cost and capital synergies.
Moody’s Ratings analysts have supported this view, suggesting that the acquisition could be credit-positive for both firms. For Aviva, acquiring Direct Line would accelerate its strategic shift towards capital-light products and strengthen its return on equity.
From Direct Line’s perspective, Moody’s said the main benefit of an acquisition by Aviva would be support from a larger, more diversified parent group with better credit quality.
To achieve the expected benefits of the acquisition, workforce reductions are anticipated, the insurers stated. These reductions, stemming from overlapping functions across various departments, are estimated to affect roughly 5% to 7% of the Combined Group’s employee base.
However, Aviva plans to mitigate the impact of these reductions through several measures. First, the workforce reduction will be phased in over three years following the completion of the acquisition. Secondly, natural attrition will play a role, with Aviva noting an approximate turnover of 1,300 employees in the UK in 2024.
Furthermore, Aviva is committed to redeploying employees where possible. The company currently has approximately 800 UK-based vacancies and anticipates the creation of new positions as it continues to pursue its organic growth ambitions.
Commenting on the Acquisition, Amanda Blanc, Group Chief Executive Officer of Aviva, said: “This 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.
“Aviva and Direct Line share a deep commitment to excellence in looking after customers, and this will remain a top priority following the Acquisition. The financial strength and scale of the Combined Group means customers will benefit from competitive pricing, an enhanced claims experience and even better service.
“The acquisition of Direct Line by Aviva will bring together a number of the UK’s leading brands in a more efficient business, which is very well positioned to generate strong returns for all shareholders.”
Adam Winslow, Chief Executive Officer of Direct Line, stated: “Direct Line is an excellent business, home to many well-loved insurance brands, and this year we have made fast progress on our turnaround strategy. Bringing Direct Line and Aviva together offers the opportunity to create a strengthened and enlarged business, with both organisations sharing a deep passion for serving customers and for supporting their people.
“In a highly competitive UK general insurance marketplace, the combined entity will be very well placed to deliver for its customers. I am proud of what Direct Line has achieved to date, and this offer will enable the business to continue to succeed as part of a combined group with Aviva.”
The post Aviva to acquire Direct Line for £3.7bn appeared first on ReinsuranceNe.ws.