Ageas said to strike unconvincing tone in Direct Line takeover bid
Belgian-French multinational insurer Ageas has proven to be a rather unconvincing suitor for UK rival Direct Line, with an indicative takeover bid and later sweetener well short of analyst and market hopes.
“With a second offer from Ageas valuing Direct Line at only 237p, the prospects of a bid reaching our expectation of 270p-300p are receding,” analysts at Jeffries said of the bid, priced in GBP cents.
Comments follow word that Ageas had upped its indicative bid by a mild 3% vis-a-vis the initial offer made in January and made public end-February. That revised offer near £3.1 billion included a 20% increase in the cash component, offset by a narrowing of the equity share exchange parity.
“Ageas came back with a miniscule 3% increase,” equity analyst Abid Hussain of Panmure Gordon wrote of revised terms.
Markets have agreed, chiefly showing disappointment in the Ageas offer as it developed. Initial reaction to the end-February announcements had taken shares only 57% of the way to the Ageas bid price, followed by the chorus of analyst complaints that the deal was too low, but could yet be sweetened or draw rival bids.
Ageas may have assumed that the chief concern was the heavy reliance on the equity component - some 57% of the original deal calculation. Investors might not like to face the unknowns of post-deal Ageas share prices once the new Ageas shares hit the market.
But the shift to a higher cash component - alongside the mere 3% rise in overall valuation - sent shares back down again (despite interim gains), showing a broader set of investor concerns. The current share price of 209p may be 28% above levels from before the saga began, but remains 12% below the Ageas bid, 20% below the Panmure Gordon takeover threshold and 23% below the minimum acceptable price from rival brokerages Jeffries and Berenberg.
Rival bids may be the more likely route to an acceptable offer, analysts have now suggested between the lines.
Panmure Gordon's Hussain now suspects that Ageas must feel some internal pressure to stick to a low-ball offer. "We suspect Ageas may struggle to get internal (and shareholder) approval for a materially higher cash component," Hussain said.
Analysts at Berenberg followed up with word that a possible offer of up to 270p per share would be “manageable” for but that “much above that the balance sheet ratios of Ageas would become stretched, in our view”.
Any rival bid for the UK insurer is more likely to come from overseas than from another UK insurer, Panmure Gordon's Hussain added, citing Direct Line's "significant market share" in UK motor insurance.
Ageas has said it likes the asset for the added European market share, with what it considers a needed tilt towards non-life business and the improving outlook for UK personal lines, chiefly homeowners and motor.
Distribution models look “highly complementary,” Ageas said of its own strength in intermediary partnerships and Direct Line's strength in direct channels and on price comparison sites.
Direct Line, in turn, likes its own stand-alone outlook, citing its “strong strategic position, powerful brands, and robust capital position”. Direct Line is set to take on a new CEO, Adam Winslow, who has been tasked with “refreshing the strategy and operational focus” with a goal or “returning to a sustainable level of operating profit over time”.
The Ageas bid, both initial and updated, looks “uncertain, unattractive and ... opportunistic.”
Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.
