Aviva has launched an audacious £3.3billion bid to buy troubled rival Direct Line.
The FTSE 100 insurance giant, led by Amanda Blanc, revealed last night that it tabled an offer for its smaller competitor worth 250p a share.
That was well above the 158.7p Direct Line shares were trading at yesterday, valuing it at £2.1billion.
But the offer was rejected by the Direct Line board – setting the scene for a takeover battle between now and Christmas.
The proposal from Blanc and her team offered Direct Line investors 112.5p in cash and 0.282 Aviva shares for each share they hold in Direct Line.
Together, it was a near-60 per cent premium to the insurer’s closing price the day before the bid was announced.
Swoop: Aviva boss Amanda BlanAviva has launched an audacious £3.3bn bid to buy troubled rival Direct Line
But Direct Line branded Aviva’s offer ‘highly opportunistic’ and said it ‘substantially undervalued the company’.
Under City takeover rules, Aviva now has until 5pm on Christmas Day to decide whether it wishes to make a formal offer for Direct Line or walk away.
The tussle could lead to a hostile bid, where Aviva go directly to Direct Line shareholders and ask them to support the takeover against the wishes of its management.
It is the second bid for the insurer in less than 12 months, with Direct Line having successfully fended off a takeover attempt by Belgian rival Ageas earlier this year.
The group suffered embarrassment in August when it revealed an accounting blunder that led to its financial strength being reported as higher than was actually the case.
Aviva’s swoop came just weeks after Direct Line’s boss Adam Winslow, who took over at the beginning of March, announced that the business was cutting 550 jobs as part of a £100million cost-saving programme to revive its fortunes.
The cuts, representing 5 per cent of the beleaguered insurance firm’s workforce, were announced as the group revealed that it had lost 71,000 own-brand motor insurance customers in the latest quarter. Direct Line has been pushing through price hikes as the cost of insurance claims has soared.
But this has sparked an exodus of its own-brand motor insurance customers, with the total number falling to just over 3m in the third quarter of this year.
Winslow’s strategy to grow customer numbers involves making Direct Line insurance available on price comparison websites for the first time, reversing years of resistance to the move under previous bosses.
But his efforts have so far failed to yield results for investors, with Direct Line’s share price having slumped nearly 24 per cent since he arrived at the business.
Direct Line’s leadership have even lost the support of its founder Sir Peter Wood, an insurance tycoon who set up the business as the UK’s first telephone-only insurer in 1985.
Wood, 78, told The Mail on Sunday in March that the group had been managed ‘terribly’ for years, making it a sitting duck for predators.
He said it should be sold to a bidder offering a ‘decent’ price.
Sir Peter added that the company had been run ‘so abysmally for so long’ that it deserved to be taken over by a competitor.
By contrast, Aviva has seen its share price power ahead, rising nearly 13 per cent so far this year. They gained 1.6 per cent yesterday, closing at 489.3p.
It has left Blanc hunting for acquisition targets.
Last year, the group snapped up AIG Life for £460million and in March entered the Lloyd’s insurance market with a £242million deal to buy underwriter Probitas.
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