Aviva Acquires Direct Line Insurance Group

Date: November 27, 2023

Aviva (LON:AV) announced a definitive agreement on Monday to acquire Direct Line Insurance Group (LON:DLGD) in a cash-and-share transaction valued at approximately £3.7 billion.

Deal Structure

Under the terms of the deal, Direct Line shareholders will receive:
– 0.2867 newly issued Aviva shares
– 129.7 pence in cash per share
– Up to 5 pence in potential dividend payments, pending approval.

Based on Aviva's closing share price on November 27, this offers a valuation of 275 pence for Direct Line shares. This represents:
– A premium of 73.3% over Direct Line's last closing price before the announcement.
– Nearly 50% above its six-month average.

Ownership and Timeline

Post-acquisition, Aviva will control the merged entity, with its shareholders owning 87.5% of the group, while Direct Line shareholders will hold 12.5%. The deal is projected to finalize by mid-2025, contingent on regulatory and shareholder approvals, along with a court-sanctioned scheme of arrangement.

Strategic Goals

This acquisition aligns with Aviva’s strategy to streamline operations and expand within the UK’s personal insurance sector, which generates over £26 billion annually in gross written premiums. Aviva expects:
– Annual cost synergies of £125 million by the third year after the acquisition.
– Improved customer offerings and significant growth potential.

Direct Line's Situation

Direct Line has been working on a turnaround strategy to recover its financial health, though its stock valuation has suffered due to market challenges. The acquisition allows its shareholders to capitalize on immediate value while participating in the potential growth of the merged entity.

According to Aviva, this deal reinforces its commitment to delivering value to customers and shareholders by leveraging its scale and technological advancements.

> “In a highly competitive UK general insurance marketplace, the combined entity will be very well placed to deliver for its customers,” said Adam Winslow, Chief Executive at Direct Line.

As of 03:35 ET, shares of Direct Line rose by 3.1%.