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Insurance heavyweight Aviva has reached a deal to acquire rival Direct Line in a deal worth £3.7billion.

An earlier £3.3billion bid was knocked back by Direct Line, which told shareholders the approach was “highly opportunistic and substantially undervalued the company”.

But the board has now agreed to accept an improved offer, described as an "excellent" deal for shareholders and customers of both firms.

Under the deal, which values the entire diluted share capital of Direct Line at around £3.7billion, for each Direct Line share, holders will get 0.2867 new Aviva shares, 129.7p in cash, up to 5p in aggregate in dividends.

Based on Aviva shares valued at 489.3p, this values each Direct Line Share at 275p.

Commenting on the acquisition, Dame Amanda Blanc, group chief executive officer of Aviva, said: "This deal is excellent news for the customers and shareholders of Aviva and Direct Line.

"It builds on our track record of delivering four years of strong financial performance and, in line with our strategy, it accelerates our growth in capital light business.

"Aviva and Direct Line share a deep commitment to excellence in looking after customers, and this will remain a top priority following the acquisition. The financial strength and scale of the combined group means customers will benefit from competitive pricing, an enhanced claims experience and even better service.

"The acquisition of Direct Line by Aviva will bring together a number of the UK's leading brands in a more efficient business, which is very well positioned to generate strong returns for all shareholders."

Danuta Gray, chair of Direct Line, added: "The board of Direct Line is pleased to recommend Aviva's offer for the company, which delivers significant value for Direct Line shareholders.

"The offer represents a substantial premium and reflects the attractiveness of Direct Line, a high-quality business with powerful insurance brands, excellent customer focus, and exceptional people.

"The board of Direct Line has been very pleased with the progress made by its new management team, but Direct Line is in the early stages of an extensive turnaround, and it believes the offer allows Direct Line shareholders to realise the value of their investment in the near term.

"Direct Line's customers and employees will be joining an established, successful business with a wide array of insurance products that is well-placed to deliver for all its stakeholders."

FTSE 100

The UK's flagship share index, the FTSE 100, was down 22 points at 8,055 shortly after opening this morning.

Brent crude oil futures were down 0.23%, trading at $73.13 a barrel.

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