Aviva has confirmed it will buy Direct Line for £3.7bn, but the takeover will put up to 2,300 jobs at risk.
The boards of both insurance companies announced this morning that they have reached an agreement on the terms of a recommended cash and share offer for Direct Line.
Aviva, the UK’s largest insurer, said it would offer the equivalent of £2.75 for each Direct Line share in cash and shares.
This was set out in a preliminary agreement earlier this month. Direct Line previously rejected 250p and 261p per share bids.
Amanda Blanc, group chief executive officer of Aviva, described the deal as “excellent news for the customers and shareholders of Aviva and Direct Line”.
She said the financial strength and scale of the combined group means “customers will benefit from competitive pricing, an enhanced claims experience and even better service.”
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However, the companies said they planned to cut 5-7% of the combined group’s employee base, equivalent to between 1,600 and 2,300 jobs. Aviva currently employs about 23,000 people and Direct Line Group employs around 10,100.
Job cuts will take place over three years, with many roles removed as part of annual turnover of staff.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: “Christmas has come early for Direct Line investors, as Aviva’s £3.7bn buyout has officially been signed, sealed, and delivered. The terms of the deal remain unchanged from what was floated to the markets earlier this month, and the festive confirmation has wrapped up what many investors had already baked into expectations, leaving little surprise under the tree.
“This deal strikes a balance that seems to deliver value for both parties. Direct Line has been navigating choppy waters, with its market share steadily eroding and a history of missteps from previous management leaving the ship off course. While the new management team has been working to steady the vessel, even they couldn’t deny that Aviva’s offer was the golden ticket they’d struggle to replicate on their own. Though they’ve expressed confidence in their independent strategy, this proposal was simply too compelling to pass up.”
