DLG founder responds to Aviva takeover agreement as market implications revealed

Insurance veteran Peter Wood has backed Aviva’s proposed £3.6bn takeover of Direct Line Group (DLG).

Last week (6 December 2024), the two firms reached a preliminary agreement on the financial terms for a potential acquisition.

It came after Aviva upped its bid from £3.3bn to £3.6bn. The DLG board said it was minded to recommend to shareholders that they accept a formal offer, despite remaining confident in the insurer’s standalone prospects.

Wood, who founded DLG in 1985 and left in 1997, was quoted by The Times as saying that the improved offer was “quite a hefty premium”.

He also felt DLG shareholders were “probably better off having Aviva paper than having Direct Line, with no guarantees it’s going to be successful”.

Market implications

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

However, Wood said it was likely to be “a done deal” and dismissed concerns that the competition authorities might block it.

Pricing specialist Pearson Ham conducted an analysis of the market share implications should such a deal be finalised. It said that within the motor market, a merger would position the combined entity with a share of approximately 14%.

As for the home sector, a deal would create the fourth largest group, with a combined market share of around 9%, Pearson Ham said.

The DLG board felt that combining with Aviva ”would provide the opportunity to deliver significant synergies, creating substantial additional value for both sets of shareholders”.