Aviva has agreed a £3.75 billion takeover of insurance rival Direct Line following intensive talks over the weekend and ahead of a Christmas Day deadline.
The offer values each Direct Line Share at 275p a premium of 73.3% to the closing price of 158.7p on 27 November.
Direct Line shareholders will receive 0.2867 Aviva shares, along with 129.7p in cash and a dividend of up to 5p a share.
After completion of the proposed deal, Direct Line shareholders will own 12.5% of the enlarged group, making it the UK’s second largest car insurer behind Admiral.
Pre-tax cost savings of at least £125m have been identified through an unspecified number of job cuts, economies of scale and increased efficiency.
The job cuts will impact “duplicative back and middle office IT platforms, as well as rationalisation of supporting teams and the reduction of overlapping roles in a number of shared service, head office and senior management functions”.
In a joint statement the companies said cost synergies will be achieved through one-off integration costs of approximately £250m of which approximately 75% are expected within the first two years post-completion.
The agreed price represents a hike on Aviva’s initial approach. Direct Line, which also owns Churchill and Green Flag, fended off a bid Belgian rival Ageas earlier this year.
Dame Amanda Blanc, group chief executive at Aviva, said: “This deal is excellent news for the customers and shareholders of Aviva and Direct Line.
Amanda Blanc
Amanda Blanc: strong financial performance
“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.”
Danuta Gray, chair of Direct Line, said: “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.”
Adam Winslow, who joined Direct Line as chief executive earlier this year to lead the turnaround, said: “Bringing Direct Line and Aviva together offers the opportunity to create a strengthened and enlarged business.
“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.”
