Aviva agrees £3.7bn deal to acquire Direct Line, forming a UK motor insurance powerhouse

Aviva has struck a definitive agreement to purchase Direct Line for £3.7 billion, creating one of the largest motor insurance providers in Britain. The FTSE 100 insurer will pay 275p per share for the FTSE 250-listed company, representing a 73.3 per cent premium to Direct Line’s share price before talks emerged in November.

The acquisition, set for completion by mid-next year, will also create a leading home insurance business and is forecast to bring in around £125 million in cost savings. However, the resulting consolidation is expected to put roughly 2,000 jobs at risk. Aviva says it aims to address some of these redundancies through existing vacancies and redeployment opportunities across the combined group.

Danuta Gray, chair of Direct Line, said the offer delivered “significant value” for shareholders, noting the company’s established brands, robust customer focus and skilled workforce. Once merged, Aviva will stand toe-to-toe with Admiral in the fiercely competitive motor insurance market, while also solidifying its position as the UK’s biggest home insurer.

Dame Amanda Blanc, Aviva’s chief executive, said the deal accelerates her strategy of building more capital-light lines of business. She emphasised the strong alignment in how both companies serve customers, adding that the enlarged group will offer “competitive pricing, an enhanced claims experience and even better service.”

Having sold eight international operations since 2020, Aviva has been refocusing its portfolio on the UK, Ireland and Canada. Its surprise approach for Direct Line last month also included bids for Churchill and Green Flag, both of which are part of Direct Line’s suite of brands.

The takeover follows a challenging period for Direct Line, which was hit by a series of profit warnings in 2022 and 2023 amid rising motor insurance claims. An earlier £3.2 billion offer from Belgian insurer Ageas fell through last year, just months after Direct Line appointed Adam Winslow, formerly of Aviva, as its chief executive.

Aviva expects the combined entity to boost earnings per share by about 10 per cent once it achieves the targeted cost savings. It plans to lift its dividend by a mid-single digit percentage after the deal closes; at present, Aviva yields 7.4 per cent, among the highest in the FTSE 100.

Under the terms of the deal, Direct Line shareholders will receive a mix of cash and shares: 0.2867 new Aviva shares, 129.7p in cash, and up to 5p in dividends. Aviva will own approximately 87.5 per cent of the newly merged company upon completion.

Shares in Aviva closed up 1.1 per cent at 462½p, while Direct Line gained 3.8 per cent to 252½p.

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Aviva agrees £3.7bn deal to acquire Direct Line, forming a UK motor insurance powerhouse