Aviva Share Discussion Threads

[cwa1] 28/11/2024 16:46

Can an offer at a near-60 per cent premium to the market price substantially undervalue a company? 

That is what Direct Line Group’s board maintains. The UK insurer rejected a £3.3bn offer from Aviva which values its shares at 250p, or at a 57.5 per cent premium to Wednesday’s closing price. Its position nods to the perceived disconnect between share prices on the beleaguered UK stock market and underlying value. But more than anything, it looks like a punchy negotiating tactic. 

Direct Line does have a valid conceptual point. It is true that, in the UK, the extra value that a buyer needs to offer to win backing for a takeover has been rising. In local parlance, 40 is the new 30 — indicating that the benchmark premium required to even merit attention has moved up by some 10 percentage points simply to reflect the FTSE’s perceived undervaluation. ;

On top of this, companies attempting a turnaround can be particularly hard to value. Direct Line was blindsided by a post-Covid surge in the cost of car repairs. Its new-ish chief executive Adam Winslow, hired from Aviva in 2023, has a plan to rebuild margins. But so far, the market has not given him much credit. 


Whether one buys into Winslow’s turnaround or not makes a difference. Before Aviva’s offer, Direct Line was trading at a meagre 6.2 times two-year forward earnings, on S&P Capital IQ estimates. Putting it on Aviva’s own multiple would imply a value of more than 220p per share — on which basis the latest bid premium would look much less compelling. It is worth noting that Direct Line successfully defended itself from a 239p-a-share bid from Belgian insurer Ageas earlier this year. 

Such considerations may, in part, explain Direct Line’s strongly-worded rebuttal. But clever tactics play just as big a role.

Aviva can clearly extract a lot of value from merging with Direct Line. Strategically it is a good fit, turning Aviva into a top player in personal and motor insurance in the UK. The larger insurer might be able to lop off 20 per cent of Direct Line’s administration costs, think Berenberg analysts, which — taxed and capitalised — would yield an extra £1.1bn of value. On top of that, a tie-in with a larger and more diversified insurer would allow Direct Line to release some regulatory capital.

Direct Line is probably betting that, given the juicy savings on offer, it can squeeze Aviva for a little more before it lets it into the tent. Its shareholders, who bid up the stock by more than 40 per cent on Thursday, will be hoping the insurer has not overplayed its hand.

[whatsup32] 28/11/2024 16:42

Lex column in FT . ‘Direct Line playing hard ball with Aviva bid.’ Sorry behind paywall so don’t know what it says.

[leedsu36] 28/11/2024 13:04

What's the latest RNS re-Aberdeen, Direct line and Aviva
Aviva have sold 13m in Direct line ?
Confused.com

[edmundshaw] 28/11/2024 13:00

250p is over 50% higher than the share price before the offer. Some big shareholders in DLG must surely be urging DLG management to reconsider. DLG was up around 300p 3 years ago, but has been in the doldrums for 2.5 years now...

[alex1621] 28/11/2024 11:34

I do not believe that either Aviva or Ageas before them are reckless management. They see obvious synergies with DLG, that can be combined with turnaround potential. Might work out well over the medium term.

[yump] 28/11/2024 11:28

I’m not sure the idea of AV. issuing more shares and then using a chunk of the proceeds to give diluted shareholders a special dividend, is a goer.

Another mixed up person for the filter.

[careful] 28/11/2024 11:24

As Aviva shares fall the deal is worth less.

Everything was going so well, we all get nervous when the management start playing at Gordon Gekko.

[yump] 28/11/2024 10:12

I was hoping to see DLG closer to 300 at some point in next few years, having bought higher - but difficult to know how much improvement to expect from them organically. A certain 20% loss from a t/o or an uncertain gain in uncertain timescale. Easy for those who bought at 200p or lower.

[bargainsniper] 28/11/2024 10:10

IndeedDlg active policies continue to decline

[spob] 28/11/2024 09:46

.
Lol

I would have bought DLG too, had i known about the previous bid earlier this year.

Totally passed me by.

[yump] 28/11/2024 09:45

As I hold both this means an unfortunate period of noisy debate between Gollum and Smeagol in my head ;-)

[spob] 28/11/2024 09:31

.
What level of synergies can Aviva squeeze out of DLG ?

Personally I would like Aviva to walk away.


A 60% premium is extremely generous already.

[t-trader] 28/11/2024 09:14

Peel Hunt analyst Andreas van Embden described Aviva’s offer as reasonable, but could be sweetened to up to 265p a share.

The offer is reasonable, in our view, discounts Direct Line Group (DLG’s) full recovery potential, and includes a bid premium in our view.
The rejection of Aviva’s proposal reflects the board’s confidence in DLG’s standalone outlook but we still believe engaging with Aviva makes sense.
Aviva could be persuaded to sweeten the deal to 260p-265p, which may help satisfy the DLG board. There is downside risk to DLG’s standalone strategy and retaining some upside in an Aviva-DLG combination could be an attractive proposition, which is worth exploring in our view.
Direct Line shares have rocketed on the news, rising by 39% to above 220p.

Van Embden added:

He said despite Direct Line’s healthy capital position, the recovery could be “bumpier than anticipated earlier this summer”.

Engaging with Aviva to fully explore their offer in more detail would make sense in our view.

[spud] 28/11/2024 09:13

I really hope AV don't chase their initial bid but I've a really bad feeling about this - This could have ABDN and Interactive Investor written all over it.spud

[whatsup32] 28/11/2024 09:04

I thought about switching to DLG a month or so back but decided not to. Aviva have until Christmas day to make a firm offer or walk away.

[1robbob] 28/11/2024 09:03

The price of success in the DLG bid, could be no Share Buyback next year.
Thus limiting the dividend increase to 5% (rather than circa 7% with a further share buyback)

I am sure a modest increase in the bid terms to secure DLG Board approval will win the day.

[tornado12] 28/11/2024 09:00

Share dilution is not great news, but I suppose Amanda wants a new challenge to grow the business. However, I agree they should not overpay as DLG has been in turmoil for last few years. In the past, I was near to investing, but I backed off as I didnt think they would sustain their dividend, proved to be right .. I have a lot of trust in our CEO ...GLA

[whatsup32] 28/11/2024 08:36

DLG have at least 20% up side from here. My guess is Av will up their offer

[tuftymatt] 28/11/2024 08:09

Yeah even as a DLG holder I don't want them to overpay as I hold AV. too.

Market seems to think they are not based on the opening fall here not being too bad in my opinion.

Good luck all 👍🏻