By Elliot Gulliver-Needham
Shares in Direct Line have surged higher by over 23 per cent today after the company confirmed that it had rejected a bid from Belgian insurer Ageas last month.
In a statement to the market, Direct Line said the offer was “uncertain, unattractive, and that it significantly undervalued” the firm and its future trading prospects.
The “highly opportunistic” bid, which valued the firm at around £3bn, was unanimously rejected by members of the board. Direct Line shares were trading at 202p each on Wednesday afternoon.
“The Board is confident in Direct Line Group’s standalone prospects given its strong strategic position, powerful brands, and robust capital position,” it said.
Although January’s offer was rejected, Ageas announced in a regulatory filing this morning that it was considering a possible offer that valued Direct Line at £3.1bn and offered shareholders .
Ageas “firmly believes that the combination of Ageas’ and Direct Line’s UK businesses will be beneficial for both Ageas and Direct Line shareholders”, the regulatory filing said.
It said: “Over the last 12 months, many of the UK sector fundamentals have improved as claims patterns and frequency have stabilised, while an evolution towards a healthier and more predictable market is being observed thanks to developing regulatory clarity and pricing practice changes.
“The repricing implemented in the sector in response to elevated inflation levels further underpins its resilience. Ageas has made significant progress with the repositioning of its UK business, as communicated during its Investor Day in November 2023, and is confident that the UK will play an important role in Ageas’ future growth ambitions by further strengthening one of Ageas’ home markets,” the statement added.
Direct Line has struggled in recent years, with its half-year results from September being described as “very poor” by Citi analysts, with pre-tax losses widening to £76.3m.
The Bromley-based insurer’s stock price has been on a steady decline, falling 46.6 per cent over the last five years, even with the spike today.
The firm’s new CEO, Adam Winslow, is set to begin in the position this week, following previous CEO Penny James’s departure from the firm last year due to an unexpected increase in weather-related claims.
Winslow previously served as UK and Ireland general insurance chief at Aviva.
In September, the firm agreed to sell its brokered commercial insurance unit for £520m, as it looked to shore up its balance sheet.
Panmure Gordon analyst Abid Hussain said: “Management has rejected a 233p per share offer for the group. We think the balance sheet issues have already largely been fixed following the recent disposal of the commercial business.
“It must now undertake the slow and hard work of fixing processes or its culture or both to react faster to inflation and other threats. The new CEO arrives at the end of the week to do just that. In the meantime, Ageas will need to revise its offer with a higher price or larger cash component or both to convince the board and shareholders.”
