Once the savings are made will there be a special, more buy back, or another predatory bid? |
Re the purchase of DL. In my experience, combining two companies in the same business can deliver value from eliminating duplication. It's vertical or horizontal acquisitions pushing into poorly understood new markets that destroy value. |
I share Spud's worries but on balance I side with cfro. Ms Blanc could have the drive and skill to make it work |
I think this is an excellent deal myself.
The piece in this weeks IC was interesting describing the need for less capital tied-up in tier 1 as the cherry on top as the business moves away from life insurance and into home and motor insurance.
Under Ms Blanc we can expect this surplus capital to be paid-out to shareholders in the form of higher dividends and more buy-backs. |
I'm personally not comfortable with this merger but time will tell.spud |
 ??????Shares in Aviva (AV.) and Direct Line (DLG) have travelled in opposite directions over the past four years. While Aviva is up by 50 per cent, its FTSE 250 rival has fallen by almost a fifth. The discrepancy is even more extreme when dividends are taken into account, given Direct Line suspended payouts in early 2023.The reasons behind the companies' divergent fortunes have been well-documented. While Aviva has slimmed down and refocused under the direction of chief executive Amanda Blanc, Direct Line was caught out by inflation and forced to issue a series of profit warnings in 2022 (it had not adequately reflected rising repair and replacement costs in its motor insurance premiums). After a boardroom shake-up, it is now in the early stages of a turnaround.What were once two separate stories, however, have merged into one. Aviva made a bid for Direct Line last month and, just before Christmas, the deal was finalised. The £2.7bn takeover is expected to close by the middle of 2025 after it has been scrutinised by regulators and the competition watchdog. Shareholders on both sides are now asking the same question: is this a good idea? A sector giant The market was generally enthusiastic about the terms of the deal. Aviva will pay 275p for every Direct Line share, split equally between cash and newly issued stock. This represents a 73 per cent premium to Direct Line's undisturbed share price, and is more than Belgian insurer Ageas (BE:AGS) offered last March.Many Direct Line shareholders will be feeling relieved. Morningstar analyst Henry Heathfield pointed out that the current financial plans for the company are "ambitious", and not guaranteed to be sustainable. "This is a highly competitive industry where Direct Line is up against a highly effective incumbent and has been losing market share as a standalone," he said.For Aviva, the purchase of Direct Line feeds into a strategy that it has been pursuing for several years: to shift away from life insurance and towards 'capital light' work such as motor and home insurance. This is a trend that is occurring "across Europe", according to Panmure Liberum analyst Abid Hussain. This is because the market values general insurers more highly than life insurers. The latter must be able to meet big payment obligations as soon as a contract starts, but they typically receive premiums in instalments over the course of multiple years. On day one, therefore, there is a capital strain and the payback period is lengthy. Motor and home insurance work can be more volatile, but returns tend to arrive faster.There are plenty of other things in favour of the deal. For starters, the combined company will dominate the sector. UBS estimates that Aviva will have a 22 per cent share of the personal lines market after the takeover, compared with Admiral's 13 per cent.Costs are also set to be slashed. Aviva is targeting savings of £125mn within three years of the deal completing, in addition to the £100mn of savings Direct Line is on track to deliver by the end of 2025. Head office and "senior management functions" will be the biggest source of savings, with up to 2,300 jobs expected to be shed. IT platforms will also be consolidated and there should be "increased efficiency" from combining insurance operations. Analysts have flagged "good similarities" between the two companies, noting that they both operate their own garage repair networks, and that combined data and technology could improve underwriting.This clearly isn't risk-free, and will be expensive at first. Aviva expects to incur £250mn of one-off integration costs, three-quarters of which will fall within the first two years. However, even including restructuring costs, management thinks the deal will increase profits in the first full year after completion, and deliver around 10 per cent earnings per share accretion once the cost savings have been realised.Rethinking investor payouts There are more than cost synergies to consider. In the insurance sector, companies have solvency capital requirements to ensure they can meet their obligations to policyholders.The level of capital insurers must hold is dictated by a range of factors, but expanding into new business lines or geographies can reduce the burden. At the half-year mark, for instance, Aviva's solvency capital requirement decreased by £400mn to £7.8bn because it had diversified away from life insurance policies. Adding Direct Line to the group is expected to help this further. "The capital benefit from diversification that will emerge is significant," chief financial officer Charlotte Jones told investors in December.Aviva itself didn't give concrete predictions, but analysts at the Bank of America (BofA) estimate that the deal could free up around £500mn-£600mn of capital.BofA described this as the "cherry on top" of the Direct Line acquisition, which could ultimately fuel higher shareholder payouts. The bank thinks Aviva will return about a third of its market cap between 2025 and 2027, culminating in a 13 per cent yield in 2027, when both dividends and buybacks are taken into account. "This is among the most attractive levels of capital return in the sector," it said.Management is certainly sounding confident for now. It has upgraded its dividend policy and, having bought back £300mn of shares in 2023 and again last year, is set to announce an even bigger buyback in 2026 to reflect the higher share count (it won't be buying back shares this year, given it needs cash for the acquisition).Since income is the big appeal of UK insurance stocks, this paints a compelling picture. It is important to remember, though, that mega deals are difficult to pull off."We don't typically like mergers and acquisitions and mainly view them as value-destructive," said Morningstar. The ratings agency is feeling optimistic in spite of this but only time will tell if it was right to let its guard down. |
Some people make money from it. I mean the snake oil courses, not people actually succeeding from implementing any of the theories. |
Are you serious with this wave nonsense ! |
5-wave down from the 500p top to the low at just above 450p, then 3-wave ABC correction (455-485-460), so lets hope we're starting a new 5-wave up. |
It seems to me that now a high percentage of Mortgages are Fixed Term,
using short term interest rates to control Inflation is a very blunt instument indeed |
All on black!! |
All good , had a nice time at Wynn . I’m going again for 4 nights next week . Yep expecting cold weather. |
It's a good question, whatsup, I have no claims etc, low crime and no floods- but £100 difference?? let along the 'also ran' quotes... a big company getting bigger, but not competing with rivals.... it's been said plenty of times on here, but this week I saw it myself.
As for the pension, you need to be CID to find their fee.
As an aside, it's offer time for transferring ISAs and SIPPs. I looked at Aviva, not a chance. It seems to be resting on its laurels IMHO.
How was Vegas? I'm suspecting it was jumper and coat weather? June for me, I know it'll be too hot... |
Sunday Times. "Scam insurers"
It seems due to high cost of insurance for youngsters some are turning to "scam insurers" . Basicly no insurance but you do buy a piece of paper to say you have insurance.
Problems arise when you try to claim .
Also highlights many who use mum and dads insurance and add their name to theirs.
Rongetrich. Why would they buy DLG if they wanted to reduce exposure to car insurance? .
I sense we want see much upside on Av. share price for awhile , |
I’ve just been auto enrolled into an Aviva pension, so whilst I was setting it up online I did a car insurance quote.
Allianz was last year’s company, and they beat Aviva by over £100. Is this is a sign Aviva don’t want car insurance now?
Car insurance was a boring car, no claims or anything, protected and with Business.
As for the pension scheme, I’ll let you know the direction of travel, but I changed the retirement age from 67 to 60 to reduce my risks, I’m guessing a sort of version of Vanguard 60:40? |
The Times today
"Legacy of a crackdown: Higher insurance costs for all.
Regulator move to stop insurers charging a loyalty penalty .
Result (my view) most if not all paying more .
Same with Smartmeters . Supposed to save Billions instead it's costing Billions and is unreliable.
I wont mention HS2
Anyone get fired ? Thrown in jail?
Taxpayers money down the drain . Sick of it |
careful
I see you used expressions 'used to be' and 'safe'
Yes you are correct.... until Politicians relised that inflation reduced the real cost of long term debt.
Inflation at 5% pa halves the real redemption value of 15 year bonds |
1robbob - I was just wondering where we could be if govt actually managed public spending over say 20 years so that with managed inflation and a bit of growth they actually paid off some debt.
Public services would be affordable without the debt interest and it would clearly take decades to pay off a meaningful amount to notice the difference - but I remember they had to coin PSDR - Public Sector Debt Repayment in the 1980's under Thatcher - how we can long for some of that... |
As you all know I am no lover of Government Bonds, UK and elsewhere.
When will investors, Institutional and Private, realise that they are de facto mega Ponzi Schemes - borrowing from tomorrow to pay for todays redemptions
This will remain the case until Governments balance their budgets over the medium term
..that does not mean a budget surplus one year in 20, it means balanced in aggregate over the period
Why on earth Pension Funds are 80%-90% invested in Bonds. Actuaries and Regulators should hang their heads in shame
Rant over...that feels better!! |
As if their model or analysis is accurate to less than 0.86%!!! |
FWIW :- Bank of America raises Aviva price target to 590 (585) pence - 'buy' |
This is up and down like you know what. Should be 500p+ already. |
I see the provisional key dates have been realised with the finals due on Feb 27th, quite a bit earlier than usual. |
GeckotheGlorious ,Yes but you are asking the turkeys vote for Christmas , lots of them with big pay rises and secure benefits are very happy, even if starmer brings more excessive sentences for so called far right views. |
Well what a fine mess the politicians (both) and the BoE have got us into.
and there is no way out, which is without risk.
I suggest that the BoE at long last shows some balls and starts an immediate programme of reducing interest rates. In exchange for HMG agreeing reductions in Public Expenditure in real terms.
The inflation risks are obvious but there is not too much external pressure on inflation and to be honest there are not many alternatives.
HMG doesn't have much choice but to agree, as to raise further taxation will be like 'trying to catch a falling knife'
Somehow they have to get some optimism back into the UK business and financial communities...words will not suffice
Such a programme will not start a bull market in long bonds as inflation concerns will continue, but it would stabilise matters........... Equities however could get quite excited!!! |
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