The Aviva-Direct Line deal will face scrutiny by the Competition and Markets Authority (CMA) amid justified concern that the presence of much bigger beast in the marketplace could mean higher premiums.
There is confidence at Aviva that it can demonstrate to the CMA that there is already ferocious competition in the markets for motor and home insurance.
When examined on a segmented basis, such as EVs, women and younger motorists, there should be no problem. But caution is called for. |
How Aviva won Direct Line in eight days |
Because I’d anticipate the buyback (which was the driver in facilitating the dividend growth through a reduced share count) being cut back or even put on hold in order to pay in part for the DLG acquisition.
spud |
Why would you say almost certainly? The deal is going to be high single digit percent accretive to earnings and AV can cross sell to the 9m customers that DLG has which will unlock revenue synergies to complement the obvious cost synergies. I blogged about my own thoughts on the deal yesterday - https://tbifund.wordpress.com/2024/12/06/stocks-update-6-12-2024/ |
If it’s seen as ‘pushing the limits of good value’ we can exclude alternative bids popping up.
If it’s seen as strategic jackpot then (hopefully)we will see that reflected in SP |
"For Aviva, the price is pushing the limit of good value but snapping up Direct Line could be a strategic jackpot," says Britzman.http://stocks.apple.com/AkxgXts_gT_CbIobHmzZwzAspud |
Motor is a commodity business, where size and the leverage it provides on costs enables cost leadership over time. Strategically they are nailing their colours to the mast, we must hope we have the management in place who will continually have an absolute focus on costs, it is a discipline that Insurers generally have not been particularity good at. |
If you are saying, AV have overpaid ... and the dividend growth strategy is at risk...
then Amanda Blanc needs to go. |
SteMiS, easy arbitrage trade if you're willing to risk it. |
Almost certainly imo. spud |
I think there is a way to go before I consider my next move. There are some points that need clarifying from the future share price after purchase complete together with the divi strategy. This was forecast to grow single mid % digits for 2024.. will that now be at risk ? |
Interesting that, if you buy DLG shares at the current share price of 255p, you get just over half your money back on takeover, plus the rest in AV. shares at an effective price of 420p compared to the current share price of 490p. |
Made me laugh as well! |
 Derren Nathan, head of equity research at Hargreaves Lansdown, said: "The deal, a mix of cash, shares, and a small dividend, delivers a 73% premium to Direct Line's pre-offer price. Direct Line's board had been holding out, insisting they could make it on their own.
"But even they had to admit that Aviva's proposal is a golden ticket they'd struggle to match independently. Confidence in their solo strategy aside, this offer was just too good to pass up.
"Let's not sugarcoat it: Direct Line has hit some serious potholes lately. Market share has been sliding, underwriting hasn't exactly been flawless, and regulators have been knocking on the door. But with a fresh leadership team at the wheel, the company has been working on a bold turnaround plan.
"For Aviva, the price is pushing the limit of good value but snapping up Direct Line could be a strategic jackpot. It cements their place as a heavyweight in the UK home and motor insurance markets and brings fresh opportunities to steer Direct Line's transformation, while squeezing out efficiency gains from their combined scale." |
Good luck building a 29.9% stake with nobody finding out!!! |
At 30% you have to make mandatory offer for the company.
At 5% your holding is public so beyond that you cannot acquire a large stake by stealth.
For the 10% mark and at intervals higher, read the press on Drahi's stake building in BT a few years ago. He was required to formally state his intentions at these points.
At least, this is my understanding...like you, happy to be corrected and learn. |
Huckers,
Forgive me but I am not sure you are right there but happy to be corrected. I am not aware that there is any requirement in the UK for a company to state if they are intending to bid once they reach a 10% holding. The key is 30%. Yes going through the various thresholds apply as you state but start at 3% for UK companies. |
Above 5% you have to declare your holding. At 10% you have to make a statement as to whether or not you intend to make bid for the company or not (a commitment that lasts six months). Not sure how they would quietly build a 29.9% stake in the company given those notification requirements?... |
The possibility of government regulatory intervention can't be ruled out |
Gary, not how it works. |
But my point remains that they should’ve used internal resources and been buying in the market to get as close to 29.9% before having any discussions. They would’ve saved a fortune at over £1 a share. |
Yes Pete I agree one could certainly make the case that 2020/22 share price was not a true reflection of a true value of the company. |
I used the word "seems" to like it and Rongetsrich I agree that it remains to be seen if that will continue. However if the market had hated it then I think Av would have been vigourously sold off this morning.
Right now I'm still supporting the simplistic view that AV CEO is doing the right deal.
If Av had wanted to buy DL just a few years ago it would have cost at least 500p a share and probably inherited their future difficulties.
Today they are offering to buy DL at considerably less that 500p, while their problems are known and are being fixed.(hopefully already fixed), and if not this would/should come to light id due diligence. |
muscle, the DLG price in 2020-2022 was based on misleading /false accounting.
They were running down reserves to zero to continue paying a high, and as it turns out unsustainable, dividend (and BoD bonuses.
Since then, they cut out the dividend completely and have only marginally reinstated it, and they have also sold their commercial insurance arm.
By buying DLG (subject to competition clearance, which presumably they have investigated) AV. are doubling their 10% share of car insurance market, so will inevitably be able to improve margins across the entire business.
Both companies have lots of infrastructure whether head office or repair garages and the opportunities for cost control are enormous.
Av. are getting a good deal with DLG, even at 275p, particularly when paying part equity rather than all cash. |
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