Aviva and Direct Line Insurance Group Preliminary Agreement

Aviva plc (LON:AV) has announced a preliminary agreement to acquire Direct Line Insurance Group plc (LON:DLGD) through a joint statement.

Under the proposal, Direct Line shareholders will receive a mix of cash, Aviva shares, and potential dividends. Specifically, Aviva plans to offer:
– 129.7 pence in cash per Direct Line share, funded by internal resources.
– 0.2867 new Aviva shares for each Direct Line share.
– Up to 5 pence per share in dividends, pending approval from Direct Line's Board.

This corresponds to a 275 pence per share consideration, presenting a 73.3% premium over Direct Line's last closing price before the offer period and a 49.7% premium based on a six-month volume-weighted average price.

The joint statement emphasized Aviva's belief in the strategic and financial benefits of combining Direct Line with its group. However, Direct Line’s Board prefers the company to remain standalone while recognizing the offer's value for shareholders.

If the deal proceeds, Direct Line shareholders would hold about 12.5% of the enlarged Aviva group. After discussions with advisors, the Board has indicated they might recommend the offer pending a formal announcement of intent.

The deal is subject to due diligence and standard conditions. Aviva has clarified it can modify the offer terms or introduce different forms of consideration before a firm bid and that changes might reflect adjustments in transaction terms, including dividends or shareholder actions.

Jefferies analysts highlighted that Aviva's increased offer of 275 pence per share from an initial 250 pence and a projection of 270 pence aligns with the Board's likely inclination to recommend it. They view this as a prompt and fair resolution, preventing the need for a hostile bid.

While no firm offer is made yet, Aviva has until December 25 to decide whether to proceed or withdraw, a deadline that might be extended with UK Takeover Panel approval.

Following the announcement, Direct Line shares rose by over 7%.