Insurance giant Aviva has agreed to take over Direct Line in a £3.7 billion deal, putting around 2,300 jobs at risk.
The offer was rejected this weekend to meet the Christmas deadline.
But plans to cut £125 million in costs, including thousands of job losses, will cast a shadow over the festive period for the companies’ 33,000 employees.
And it’s the latest blow to the London stock market as FTSE 250 company Direct Line is set to delist.
Aviva, led by CEO Dame Amanda Blanc, will become Britain’s largest car insurer after Admiral.
It is a blockbuster acquisition for Blanc as she focuses on acquisitions in Aviva’s core markets after cutting overseas assets to simplify its FTSE 100 business.
Aviva boss Amanda Blanc has completed her takeover of Adam Winslow’s Direct Line
Protect customers against insurance price increases
Customers must be protected from sharp price rises after Direct Line agreed to a takeover by Aviva, the former head of the competition regulator has said.
The partnership creates a company with more than a fifth of the UK home and car insurance market.
Lord Tyrie, former chairman of the Competition and Markets Authority (CMA), said: ‘It will be extremely important to ensure that consumers are not harmed.’
Some fear that less competition could lead to higher insurance premiums, which have soared since the pandemic.
Bijal Tanna, at management consultancy Altus Consulting, said: ‘I think the CMA will want to look closely at this because of the impact on market share, particularly within the private car insurance market… (which)… is already dominated by a few key players.’
But he said there is an opportunity for lower prices if it reduces costs.
There is already anger about price increases. The cost of car insurance has risen by 82 per cent since 2021, the Office for National Statistics says.
James Daley of campaign group Fairer Finance has said a deal would ‘reduce competition’. Interactive Investor’s Keith Bowman said this would create “a financially robust insurer.”
Deal made: Direct Line has accepted Aviva’s £3.7 billion offer
Aviva wants to increase dividends
Aviva has said it will increase planned dividends by mid-single digits upon completion.
It comes after Direct Line’s board said this month that it ‘intended to accept a £3.7 billion offer from Aviva’. The offer of 275 pence per share was the third approach in less than 12 months.
The board had rejected a £3.3 billion bid from Aviva and fended off a takeover attempt from Belgian insurer Ageas, just weeks after new CEO Adam Winslow took office.
Documents show that between 1,650 and 2,300 jobs will be cut – 5 to 7 percent of the combined company’s workforce – in the three years after the deal.
It will cut ‘duplicate’ jobs in back-office computer systems and corporate and head office functions – on top of the 550 job cuts Winslow has announced in a £100m round of cost-cutting.
The companies say the exact number will be lower as Aviva has 800 vacancies and about 1,300 employees decide to quit each year.
The integration is expected to cost Aviva £250 million over two years. It has committed to retaining its core Direct Line, Churchill and Green Flag brands, but did not elaborate on plans for lines such as Privilege and Darwin.
Blanc said: ‘This deal is excellent news for the customers and shareholders of Aviva and Direct Line.’
She added: ‘The acquisition will bring together a number of leading brands into a more efficient business, very well positioned to generate strong returns for all shareholders.’
After the deal, Aviva shareholders will own 87.5 percent of the combined company and Direct Line investors will own 12.5 percent. Further details will appear in the full offer document in February.
Shareholders will vote on the deal in March and investors who own 75 percent of shares in each company must approve the takeover for it to go through. Subject to regulatory approval, the acquisition will be completed by mid-2025.
Direct Line boss Adam Winslow’s future looks uncertain as there is reportedly no love lost between him and Aviva chief Amanda Blanc.
Winslow worked for Blanc at Aviva before taking the top job at struggling Direct Line in March.
A takeover deprives him of the opportunity to implement a turnaround. But he is likely to be comforted by a package worth millions of pounds.
Winslow, described as “insurance royalty,” is the son of Compare the Market founder Peter Winslow. A source close to the deal said there was no need for two management teams.