Briefing: Will the DLG board stay loyal to Winslow as Aviva goes on ‘charm offensive’?

By news editor James Cowen

Direct Line Group (DLG) has been the subject of major takeover interest in 2024.

First, Belgium-based Ageas submitted a £3.1bn acquisition proposal to the insurer in February 2024, before improving the terms of this bid a month later.

However, Ageas walked away from any deal after the DLG board slammed the offers as “uncertain and unattractive”.

Such an unequivocal rejection has not subsequently prevented Aviva approaching its rival insurer though, with the firm submitting a £3.3bn takeover proposal at the end of November 2024.

Despite the slightly increased offer compared to Ageas, the bid was unanimously rejected by the DLG board, with it concluding that the proposal was “highly opportunistic and substantially undervalued the company”.

Transformation plan

It is not surprising that such bids are being rejected, given that DLG is going through a major transformation programme at the moment, designed to improve its financial position.

In the 12 months to 31 December 2023, the firm recorded an operating loss from its ongoing operations of £189.5m. This was a major downswing from 2022, when the firm recorded a loss of £6.4m.

Chief executive Adam Winslow, who joined the insurer in March 2024 from Aviva, is currently aiming to remove at least £100m of costs by the end of 2025 on a run-rate annualised basis.

He is also looking to boost DLG’s visibility in the personal lines market and has overseen the launch of Direct Line, the firm’s flagship brand, on price comparison websites (PCWs).

Winslow has additionally made a range of senior appointments over the year to help execute DLG’s refreshed strategy.

For example, in May 2024, Hugh Hessing moved into the position of chief operating officer, while Craig Thornton became managing director for home and growth and Martin Milliner became managing director of claims.

This year, the firm has also appointed ex-Aviva c-suite Maz Bown as its new group chief risk officer, Lucy Johnson as managing director for motor and Dhruv Gahlaut as chief strategy and investor relations officer.

And, in October 2024, former Aviva c-suite Jane Poole was appointed group chief financial officer.

Improvements

Financial figures show that DLG’s moves are paying off, with it revealing in a recent trading update that gross written premium (GWP) and associated fees are growing.

Published on 11 November 2024, the Q3 2024 financial report showed that DLG secured £2.54bn in revenue for the nine months to September 2024, up 11.8% from £2.27bn during the same period last year.

And the business is already projected to deliver £50m in cost savings next year.

Given there have been improvements and the transformation plan has not even been executed for a year yet, it is understandable why the DLG board is backing the firm’s standalone prospects.

According to City AM, Winslow told The Sunday Times: “We’re making excellent progress in the early stages of a significant turnaround, with a refreshed and world-class leadership team in place to deliver the strategy.”

Aviva not giving up

However, Aviva – which has until 25 December 2024 to make a firm purchase offer or walk away – does not seem to be backing down after being openly rejected.

Aviva said that after DLG declined its initial proposal, it “has declined to engage further”.

But, according to The Guardian, Aviva chief executive Amanda Blanc “has been on a charm offensive, talking to a number of DLG shareholders to persuade them of the merits of its approach and to get them to encourage the board to engage in talks”.

And while Aviva’s current proposal is a full takeover for 250p per share, analysts believe the insurer could make a higher offer.

Investment bank Peel Hunt said: “Aviva could be persuaded to sweeten the deal to 260p to 265p, which may help satisfy the DLG board.

“There is downside risk to DLG’s standalone strategy and retaining some upside in an Aviva-DLG combination could be an attractive proposition.”

Conclusions

Given Winslow’s plan is currently resulting in improvements at DLG, it’s fair to say that he has earned the right to continue executing his strategy on a standalone basis.

However, joining forces with Aviva would create an attractive personal lines player and, according to Henry Heathfield, equity analyst at Morningstar, Aviva’s “offer exceeds fair value estimates for DLG”.

It does not look like Aviva is backing down on a takeover. DLG is proving to be very attractive to the market, given this is the second time it has been subject to takeover interest – although Winslow does not have history with Ageas in the same way he has with Aviva, given he was Blanc’s UKGI chief executive for around three years between 2021 and 2024. Has this steered Winslow’s decision-making here?

So, while Winslow has the support of his board currently, the question is will they eventually be swayed by a sweetened deal?

In my view, I would not rule out Winslow and Blanc reuniting in the future.