Investing.com -- Direct Line (LON:DLGD) Group has turned down a third acquisition bid this year, this time from Aviva (LON:AV), a move that reinforces the insurer’s stance on preserving its independence amid takeover interest.
The rejected offer, valued at 250p per share, comprised 112.5p in cash alongside 0.282 new Aviva shares for each Direct Line share.
While this marked a modest increase over previous bids from Ageas (EBR:AGES), analysts at Jefferies note that the premium offered—though substantial compared to recent market prices—was insufficient to meet the company's valuation expectations.
Aviva’s offer, announced on November 19 and formally dismissed by Direct Line's board on November 26, represented a 59.7% premium over the share price on the day prior to the proposal.
“In addition, we believe that the impact on Aviva’s solvency of any offer for Direct Line is likely to be relatively limited, since the share component of Aviva’s takeover proposal would likely offset the dilution from any potential goodwill,” said analysts at Berenberg in a note.
However, the board unanimously deemed the bid "highly opportunistic" and misaligned with the intrinsic value the company believes it can achieve independently.
“Previously, we suggested that the capital and expense synergies available to an acquirer mean that an offer of at least 270p would be more realistic,” Jefferies said.
The rejected bid follows a series of similar overtures this year, underscoring the strategic appeal of Direct Line in the UK insurance market.
Jefferies analysts flag the potential synergies for acquirers in areas such as capital efficiency and operational costs, making Direct Line a coveted target despite its recent struggles with market volatility and underwriting pressures.
Nonetheless, the company appears resolute in its strategy to navigate current challenges and rebuild value without resorting to a merger.
This standoff leaves Aviva with a deadline of December 25 to either make a firmer offer or withdraw its interest under UK takeover regulations.
“We believe that the market will seriously consider the benefits of the Aviva tentative offer, and while we do note the Direct Line board’s rejection, we believe that a higher offer would be well received by the market,” said Berenberg.
Shares of the company surged 41% at 4:34 ET (9:34 GMT)