The British insurer Direct Line Insurance Group PLC (GB:DLG) has turned down the £3.3 billion takeover bid from its UK-based rival firm Aviva PLC (GB:AV). In a statement, Direct Line described the offer as “highly opportunistic,” asserting that it significantly undervalued the company. Direct Line shares fell by 0.19% on Wednesday, whereas Aviva stock gained 1.6%.
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Direct Line Insurance and Aviva are among the leading insurance companies in the UK, offering a wide range of products.
Aviva Eyes Expansion with Direct Line Bid
Last week, Aviva proposed to acquire 100% of Direct Line at a total value of 250p per share, representing almost a 60% premium to the closing price the day before the offer. The bid comprised 112.5p in cash per Direct Line share, along with 0.282 newly issued Aviva shares for each Direct Line share.
Aviva sees the Direct Line acquisition as a strategic move to boost its UK expansion, enhance its personal lines market presence, and create a more efficient customer platform. Additionally, the acquisition would yield significant benefits for shareholders of both companies.
Direct Line Pushes Ahead with Turnaround Strategy
Direct Line Insurance is working through a turnaround plan after a post-pandemic rise in claims costs severely impacted its operations. As a result, the company implemented aggressive price hikes and cost-saving measures to manage its costs.
In response to Aviva’s offers, Direct Line expressed strong confidence in executing its turnaround strategy. Meanwhile, Aviva believes the proposed acquisition will deliver substantial cost and capital synergies, complementing Direct Line’s ongoing cost-saving initiatives.
Under UK takeover rules, Aviva has until December 25 to either make a firm offer or withdraw its bid.
Is Direct Line a Good Stock to Buy?
According to TipRanks’ consensus, DLG stock has received a Moderate Buy rating, backed by four Buy and four Hold recommendations. The Direct Line share price target is 203.25p, which is 28% above the current trading level.
