"Highly Opportunistic" Offer Turned Down and Shares boom.

Shares have surged 37 per cent today after the UK motor insurer rejected a takeover bid from larger rival Aviva.

UK-based car insurance provider Direct Line has rejected a £3.3bn takeover proposal from Aviva, labelling the cash and shares bid as "highly opportunistic" and undervaluing the business. The non-binding offer, announced on Wednesday, was worth 250p per share, comprising 112.5p in cash and 0.282 new Aviva shares for each Direct Line share. Despite representing a 57.5% premium to Direct Line's recent share price, the insurer’s board dismissed the bid, highlighting its commitment to its turnaround strategy.

Aviva’s Intentions Behind the Bid

Aviva, a major UK insurer with over 18 million customers, positioned the acquisition as an opportunity to accelerate growth, unlock value, and achieve significant cost savings. The company claimed the merger could enhance Direct Line’s financial standing and deliver attractive returns to shareholders of both businesses.

However, Direct Line's board believes in its independent growth prospects, stating confidence in its leadership team and ongoing strategy to improve profitability and shareholder returns.

Direct Line’s Turnaround in Progress

Direct Line is midway through a restructuring plan initiated after post-pandemic challenges led to a surge in claims costs. Earlier this year, the company appointed Adam Winslow, a former Aviva executive, as CEO. Under his leadership, Direct Line is targeting a shift towards core markets, including motor, home, and commercial insurance, while achieving £100m in cost savings by 2025.

In line with this strategy, the company recently announced a 6% workforce reduction, cutting about 550 jobs, and emphasised its determination to return to growth and profitability without external intervention.

A History of Takeover Interest

This is not the first time Direct Line has been approached for acquisition. In February, the insurer rejected a £3.1bn bid from Belgian insurance firm Ageas, citing similar concerns over undervaluation.

What Happens Next?

Under UK takeover regulations, Aviva has until 25 December to make a firm offer or withdraw. As the deadline approaches, investors and industry watchers will be closely monitoring any updates on this potential merger.

The Bigger Picture

Direct Line’s rejection of Aviva’s bid signals its commitment to independent operations and belief in its turnaround plan. With its robust focus on streamlining operations and strengthening its core business areas, the company appears confident in its ability to deliver long-term value to shareholders.

Source: (FT.com)