The British insurance giant Aviva hit the headlines, by making a takeover offer of 3.28 billion pounds (USD 4.16 billion) to its smaller rival Direct Line Insurance. The latter, however, has rejected the offer, claiming the bid “substantially undervalued” the business.
On November 19, Aviva made an offer of 250 pence per share, which was almost 60% more than the stock’s closing price the day before. Direct Line shareholders would have received 0.282 new Aviva shares for each Direct Line share held, along with 112.5 pence in cash, if the deal had been approved.
However, as of the latest update, Aviva has now contacted investors in bid target Direct Line, a move that could pave the way for a hostile takeover of the smaller rival.
Direct Line has declined to participate in additional talks, according to a separate statement from Aviva, a life, auto, and home insurance provider.
A person with knowledge of the situation told Reuters that the chairpersons of both businesses had directly communicated their reasons for Direct Line’s rejection of the offer.
Aviva’s proposal was deemed “highly opportunistic” by Direct Line’s board after consulting with its advisors. British takeover regulations state that Aviva has until December 25 to either make a firm offer or leave.
Aviva, however, said the bid was a “highly attractive” and “compelling” offer with “high execution certainty,” which also met Aviva’s strict financial criteria for acquisitions.
The Belgian rival Ageas made a takeover offer of 239 pence per share in March 2024, which was four points less than Aviva’s offer, but London-based Direct Line also turned it down.
The UK insurer’s stock has dropped as much as 14% since Ageas gave up on the deal that same month. Adam Winslow, Direct Line’s new CEO, joined the company from Aviva in March. Since then, he has worked to revitalise a company that is having trouble in the weak motor market.
The company’s underwhelming motor insurance division caused it to fall short of its half-year operating profit forecast in September. Early in November, it announced plans to reduce 550 positions, or roughly 5% of its global workforce, and enacted aggressive price increases to offset the growing costs of claims.
Direct Line announced that it is still moving closer to its turnaround strategy’s financial and profitability goals. However, the venture’s shares rose nearly 40% on November 27 to 220p per share, valuing the company just below USD 3 billion, as the news broke out about it rejecting the Aviva bid.
On the other hand, Goldman Sachs has now switched sides to advise Aviva on the Direct Line bid, only eight months after helping the target successfully defend against another suitor.
The New York-based investment bank — with a team led by bankers Anthony Gutman, Nimesh Khiroya and Bertie Whitehead — is advising London-listed Aviva on its bid alongside Citigroup, according to a regulatory statement.
Goldman Sachs helped Direct Line to rebuff a proposal from Belgian rival Ageas in March 2024 that valued it at around 3.2 billion pound. The Goldman team fronted by Mark Sorrell helped fend off Ageas with Direct Line’s fellow advisers at Morgan Stanley, RBC Capital Markets, Robey Warshaw and JPMorgan Cazenove.
“After Ageas walked away, Goldman Sachs and Direct Line mutually agreed to end the engagement in the summer and the American bank has had no active investment banking roles since then,” the lender told Bloomberg News.
Goldman Sachs has been a corporate broker for Aviva since 2023. In the latest defence against Aviva, Direct Line retained Morgan Stanley, Robey Warshaw and RBC Capital Markets. Merger arbitrade specialist MKP Advisors wrote in a note that it understands Goldman Sachs is using a “clean team” on the deal, meaning a separate group of personnel from the previous engagement with Direct Line.
“Still, having played a key role in a contentious defence process last time, GS should know exactly where the killing zone is (or at least was) in March for shareholders,” MKP wrote.
Goldman Sachs has emerged as the top adviser on United Kingdom deals in 2024, according to data compiled by Bloomberg. Those deals include International Paper Co.’s proposed 5.8-billion-pound acquisition of DS Smith Plc and the pending sale of Hargreaves Lansdown Plc to a consortium led by CVC Capital Partners Plc.
In 2012, Goldman Sachs was a joint lead manager on Direct Line’s initial public offering (IPO), which raised 906 million pound. Before Aviva’s bid for Direct Line, the two companies had separately retained Brunswick Group for public relations advice. Given the potential conflict, Brunswick chose to work with Direct Line on defence.
Direct Line CEO Adam Winslow used to run Aviva’s United Kingdom and Ireland general insurance business. The smaller insurer’s chief financial officer, Jane Poole, also joined from Aviva in October 2024.
It’s not the first time that Goldman Sachs has switched to side with the winning bidder. In 2019, The American investment giant jumped from losing suitor Bain Capital to backing Berry Global Group’s last-minute winning bid for UK packaging company RPC Group.