Ageas eyes Direct Line in bid for European non-life, quickly rebuffed

Belgian-French multinational insurer Ageas submitted a preliminary takeover bid for the whole of UK rival Direct Line back in mid-January with an eye to “significant” synergies available for the combined groups on the UK market, then got a quick cold shoulder in return. 

Direct Line held the offer for ten days, then told Ageas it found the offer “to be uncertain, unattractive, and that it significantly undervalued Direct Line Group and its future prospects while also being highly opportunistic in nature”.

The cash and equity offer, very roughly 3 parts equity for every two parts cash, would value Direct Line at £2.33 per share, above £3 billion when counted against the mid-2023 diluted share count. 

Ageas, which built numerous conditions into its very preliminary bid, was considering a cash component of 100 pence per share plus one new Ageas share for every 25.24047 Direct Line shares tendered.

The price represented a premium of nearly 43% to market prices ahead of the announcement or roughly 37% versus prices from the end-January range when the deal was submitted and ultimately rejected.  

Shares on the LSE, up a sizeable 19% on the news, nonetheless closed less than half the gap between the  pre-announcement price and the Ageas bid valuation, suggesting investors remain less than confident this deal will go through or even that rival bids could surface. 

Ageas 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. 

The UK market's current recovery seems likely to deliver healthier fundamentals, as Ageas claims to see in its own UK business, management said. 

“Over the long-term, the UK personal lines sector has proven to be structurally profitable and, through its own UK operations, Ageas sees its strong potential,” Ageas said. 

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.”

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