Direct Line backs £3.6bn takeover move by rival Aviva

Direct Line has said it plans to back a takeover move by rival insurance firm Aviva.

The firms said they have reached an initial agreement over a cash-and-shares deal valuing Direct Line at £3.61 billion, or 275p per share.

Aviva made the sweetened approach after seeing a £3.3 billion takeover tilt rebuffed last month.

It had said the previous 250p per share proposal “substantially undervalued” the company.

On Friday, Direct Line said it would be minded to support the move, which would see Aviva pay 129.7p in cash, and 0.2867 of its own shares for each Direct Line share.

A deal between the two firms would create a significant force in the motor insurance sector, estimated to cover more than a fifth of the total UK market.

Bosses at Direct Line said combining the businesses would “provide the opportunity to deliver significant synergies, creating substantial additional value for both sets of shareholders”.

In a statement to shareholders, Direct Line said: “The board of Direct Line remains confident in Direct Line’s prospects as a standalone company and continues to have conviction in the capabilities of the newly established leadership team to deliver the announced strategy.

“That said, the board of Direct Line has carefully considered the proposal with its advisers and consulted with Direct Line shareholders during the offer period, and has concluded that the proposal is at a value that it would be minded to recommend to Direct Line shareholders should a firm intention to make an offer.”