Aviva has agreed a £3.6bn takeover deal with Direct Line, after winning over its smaller rival with an improved bid.
Aviva, the UK’s largest insurer which also holds an equity release business, has offered to pay 275p in cash and shares for Direct Line.
This is up from the 250p cash and share offer Aviva tabled last week. The Direct Line board dismissed that bid as “highly opportunistic”.
The deal will create a large UK motor insurance business, with the combined group estimated to have more than a fifth of the market and a market cap of around £16.6bn.
The latest offer would see Aviva pay 129.7p in cash, and 0.2867 of its own shares for each Direct Line share. Direct Line shareholders would also receive a 5p-per-share dividend before completion.
This is a 73% premium on Direct Line’s share price on 27 November, the day before Aviva, led by chief executive Amanda Blanc, made its first offer public.
Direct Line said last month that it plans to cut 550 jobs as part of a turnaround plan to save £50m next year. The firm has lost nearly 400,000 car insurance customers over the past year.
It hired Adam Winslow as chief executive in March who joined from Aviva, where he ran the general insurance business in the UK and Ireland.
Also last month, Aviva said its retirement unit’s sales, which holds its later life business, jumped 67% to £7.3bn from a year ago, driven by higher bulk purchase annuity volumes.
It pointed out that individual annuity sales were up 13% to £957m “a result of sustained customer demand in the higher interest rate environment”.
But added that equity release sales “were lower reflecting a contraction of the market,” without providing further details in a third-quarter trading statement to the end of September.
In February and March, Direct Line rejected two takeover approaches from Belgian insurer Ageas, the second valuing the business at £3.2bn.