Insurance giant Aviva has agreed a takeover of Direct Line in a £3.7bn deal that puts around 2,300 jobs at risk.
The offer was thrashed out over the weekend to beat a Christmas Day deadline.
But plans to make £125m cost savings including thousands of job cuts will cast a shadow over the festive period for the companies’ 33,000 employees.
And it is the latest blow to London’s stock market as FTSE 250 firm Direct Line will de-list.
Aviva, led by chief executive Dame Amanda Blanc, will become the UK’s second-largest car insurer behind Admiral.
It is a blockbuster takeover for Blanc as she targets acquisitions in Aviva’s core markets after scrapping overseas assets to simplify the FTSE 100 business.
Aviva boss Amanda Blanc has pulled off her takeover of Adam Winslow’s Direct Line
Protect customers from insurance price hikes
Customers must be protected from sharp price hikes after Direct Line agreed to a takeover by Aviva, the former head of the competition regulator said.
A tie-up will create a firm with more than a fifth of the UK home and motor insurance markets.
Lord Tyrie, former chairman of the Competition and Markets Authority (CMA), said: ‘It will be extremely important to ensure no consumer detriment results.’
Some fear less competition could mean higher insurance premiums, which have soared since the pandemic.
Bijal Tanna, at management consultancy Altus Consulting, said: ‘I think that the CMA will want to look closely at this due to the impact on market share, particularly within the personal lines motor insurance market… [which]… is already dominated by a few key players.’
But he said there was a possibility of lower prices if it cuts costs.
There has already been ire at price rises. The cost of car insurance is up 82 per cent since 2021, says the Office for National Statistics.
James Daley, at campaign group Fairer Finance, has said a deal ‘would reduce competition’. Keith Bowman, at Interactive Investor said it would create ‘a financially robust insurer.’
Done deal: Direct Line has accepted the £3.7bn offer from Aviva
Aviva to raise dividends
Aviva has said it will increase planned dividends by mid-single digit figures after completion.
It comes after Direct Line’s board said this month that it would be ‘minded to accept’ a £3.7bn offer from Aviva. The 275p per share bid was the third approach in less than 12 months.
The board had rejected a £3.3bn offer from Aviva and fended off a takeover attempt by Belgian insurer Ageas, just weeks into new chief executive Adam Winslow’s tenure.
Documents revealed that between 1,650 and 2,300 jobs will be axed – 5 to 7 per cent of the combined company’s headcount, in the three years after the deal.
It will slash ‘duplicative’ jobs running back-office computer systems and corporate and head office roles – on top of the 550 job cuts announced by Winslow in a £100m cost-cutting round.
The firms say the exact number will be lower as Aviva has 800 vacancies and about 1,300 staff decide to quit every year.
The integration is expected to cost Aviva £250m across two years. It has committed to keeping core brands Direct Line, Churchill and Green Flag but did not address plans for lines including 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 in a more efficient business, very well positioned to generate strong returns for all shareholders.’
After the deal, Aviva shareholders will own 87.5 per cent of the combined company and Direct Line investors 12.5 per cent. Further details will emerge in the full offer document in February.
Shareholders vote on the deal in March and investors owning 75 per cent of shares in each company must approve the takeover for it to pass. Subject to regulatory approval, the takeover will complete by the middle of 2025.
Direct Line boss Adam Winslow’s future looks uncertain as there is said to be 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 chance to execute 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.
