Aviva ‘contacts DLG shareholders’ as ‘hostile takeover’ looms

Aviva has contacted shareholders in Direct Line Group (DLG) to convince them to reconsider its takeover offer.

That was according to the Financial Times (FT), which said that the move “could pave the way for a hostile takeover bid for its smaller rival”.

On 27 November 2024, it was revealed that Aviva had submitted a proposal regarding a possible offer to acquire 100% of DLG for 250 pence per share.

The proposal, which is valued at £3.28bn, was rejected by DLG, with the insurer concluding that the offer was “highly opportunistic and substantially undervalued the company”.

Aviva said DLG “has declined to engage further with Aviva” following the proposal.

However, the FT stated that according to people familiar with the matter, Aviva began to approach its target’s shareholders on Thursday following the rejection.

”The shareholder outreach is designed to persuade the Direct Line board to come to the table, according to people familiar with Aviva’s plan,” the FT said.

Higher offer

Meanwhile, analysts believe that Aviva could make a higher offer.

The offer on the table was slightly higher than that made by Ageas at the start of 2024, with the Belgium-based insurer proposing 237 pence per share for DLG. This too was rejected.

However, investment bank Peel Hunt said that while the DLG board has “confidence in [its] standalone outlook, we still believe that engaging with Aviva makes sense”.

It added: “Aviva could be persuaded to sweeten the deal to 260p-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.”

‘Makes sense’

According to British takeover rules, Aviva has until 25 December 2024 to make a firm acquisition offer to DLG or walk away.

While there has been no firm indication as to what the insurer will do, the announcement of its first takeover attempt this week led to DLG’s shares rising 40%.

Aviva said a deal would create “attractive returns for both Aviva and DLG shareholders”.

And Henry Heathfield, equity analyst at Morningstar, said DLG accepting an offer “makes sense”.

He said: “Aviva’s offer is a good fit. Both companies are UK-based and Aviva has been focusing on growing its non-life segment.

“The offer exceeds fair value estimates for DLG and given the challenging targets outlined during the Capital Markets Day, accepting this deal, or a higher one, from Aviva makes sense.”