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Aviva, the UK insurance heavyweight, has agreed a £3.6bn takeover deal with Direct Line, after winning over its smaller rival with a sweetened bid.
The preliminary deal, announced in a joint statement by the companies on Friday, will see Aviva pay 275p per share for its smaller rival, a well-known brand in the motor insurance market.
The price is about a 10 per cent increase on the FTSE 100 group’s initial 250p approach in November, which consisted of cash and shares. The Direct Line board dismissed that bid as “highly opportunistic”.
The deal will create a powerhouse in UK motor insurance, where the combined group is estimated to have more than a fifth of the market.
The revised 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.
Direct Line shareholders would own approximately 12.5 per cent of the issued and to be issued share capital of Aviva.
“The Board of Direct Line remains confident in Direct Line’s prospects as a standalone company and continues to have conviction in the capabilities of the newly established leadership team to deliver the announced strategy,” Aviva and Direct Line said in a joint statement on Friday.
But they added that, after consulting with advisers and shareholders, Direct Line’s board would be “minded to recommend” the deal to the group’s shareholders.
Aviva has until December 25 to make a firm offer and Direct Line shareholders would have to vote on any deal.
The companies’ statement added: “The Direct Line Board believes that, in addition to the attractive headline value per share, the combination would provide the opportunity to deliver significant synergies, creating substantial additional value for both sets of shareholders.”
Some analysts believe the deal is likely to attract attention from competition authorities because the combined group would have more than a 20 per cent share in the UK motor insurance market.