Direct Line Insurance Group ($DLG) has firmly rejected an unsolicited takeover offer from the UK-based insurer Aviva ($AV), labeling it as a "highly opportunistic" proposal that dramatically undervalues the company. Aviva's offer consisted of 2.50 pounds sterling per share for Direct Line shareholders, split into 1.125 pounds in cash and 0.282 new Aviva shares per Direct Line share, showcasing a premium of 57.5% based on the Wednesday closing price, as detailed in separate Wednesday releases. In response to the announcement, shares of Direct Line surged nearly 41% mid-morning on Thursday in London, contrasting with a 3% decline in Aviva's stock.
Direct Line's board reviewed the nonbinding, conditional proposal and unanimously rejected it, concluding that it does not accurately represent the potential value the company can achieve on its own. "The Board has considerable conviction in the capabilities of our newly established leadership team and stands firmly behind their execution of our strategy," stated Direct Line.
"Under this strategy, the Company continues to make early progress toward our financial targets and anticipates delivering strong growth in profitability, capital generation, and shareholder returns." Conversely, Aviva stated that the transaction aligns with its strategy to expand its operations in the UK, particularly focusing on capital-light business lines and strengthening its position in the personal lines market of the country.
Despite the rejection from Direct Line, Aviva is convinced that the proposal provides benefits for both entities and ensures attractive returns to their respective shareholders. Direct Line, however, opted not to pursue further discussions with Aviva about the proposal. Aviva has a deadline until December 25 to either present a firm offer for Direct Line or withdraw its bid, with the possibility of an extension pending the UK's Takeover Panel's approval..