Aviva seals £3.75m deal to snare Direct Line

(Sharecast News) - Aviva said it had struck a deal to buy troubled insurance rival Direct Line for £3.75bn after intensive talks over the weekend and ahead of a Christmas Day deadline to make a firm offer or walk away. The offer values each Direct Line Share at 275p a premium of 73.3% to the closing Price of 158.7p on November 27. Under the terms of the deal, shareholders will receive 0.2867 Aviva shares, along with 129.7p in cash and a dividend of up to 5p a share.

Aviva plans to achieve annual pre-tax cost savings of at least £125m through an unspecified number of job cuts, "economies of scale and increased efficiency".

It identified "duplicative back and middle office IT platforms, as well as rationalisation of supporting teams and the reduction of overlapping roles in a number of shared service, head office and senior management functions".

"In order to realise these cost synergy benefits, one-off integration costs of approximately £250m are expected to be incurred, of which approximately 75% are expected within the first two years post-completion," the two companies said in a joint statement on Monday.

Direct Line's board told shareholders that it would support a sweetened £3.6bn offer after rejecting an earlier £3.3bn approach. The company, which also owns Churchill and Green Flag, fended off a bid Belgian rival Ageas earlier this year.

After completion of the proposed deal, Direct Line shareholders will own 12.5% of the enlarged group, making it the UK's second largest car insurer behind Admiral.

Reporting by Frank Prenesti for Sharecast.com