Direct Line has rejected an improved takeover bid from Belgian rival Ageas, which the insurer said still ‘significantly undervalued’ the group.
Ageas’ latest offer of 120p in cash per share, plus one newly issued Ageas share for roughly every 28.4 Direct Line shares, valued the company at £3.17billion.
This was up by around 3 per cent from a previous bid of £3.1billion.
But Direct Line told investors on Wednesday the bid, which has an implied a value of 231p per share, is ‘uncertain [and] unattractive,’ and undervalues the group and its future prospects, ‘while also being highly opportunistic in nature’.
Direct Line shares were down 5.2 per cent to 214p in early afternoon trading.
Rejected: Direct Line dismisses second, improved takeover bid
The shares have added around 30 per cent over the last year thanks to a boost at the end of February when Ageas made its first offer. They are down more than 40 per cent over the last five years.
The FTSE 250 insurer, which has 10 million customers and hosts brands Churchill and Green Flag, added it was ‘confident’ about its standalone prospects and advised investors to take no action with regard to the Ageas bid.
Hans De Cuyper, CEO of Ageas, described the Belgian firm’s latest offer as ‘compelling’ and delivering ‘substantial cash proceeds to Direct Line shareholders’, who would ‘benefit from the material value creation’ offered by combining the firms.
But Direct Line boss Adam Winslow, who last year replaced Penny James, is expected to lay out the case for the insurer to remain independent and listed in London alongside the company’s annual results on 21 March.
Winslow’s plan is expected to outline ways Direct Line could become more tech-savvy, which could include setting up an app for the first time. He is also likely to propose cost cuts, according to the The Mail on Sunday.
It follows a dismal few years for Direct Line shareholders, who have suffered multiple profit warnings.
Founder Sir Peter Wood told The Mail on Sunday earlier in March that the business had been run ‘so abysmally’ for years that Direct Line deserved to be taken over.
The FTSE 250-listed firm was launched in 1985 as the UK’s first telephone-only insurer.
In January of last year Direct Line scrapped its dividend after admitting it had been caught out by a surge in claims for burst pipes caused by icy weather.
It was later forced to repay about £30million to customers who were charged more than they should have been to renew home and car insurance policies.
Direct Line posted a loss of £76 million in September. It sold a commercial insurance unit for £520million in an effort to shore up its balance sheet.
Analysts at UBS said last week that a takeover by Ageas ‘makes strategic sense’ as it would give the Belgian firm ‘the potential to strengthen its position in an existing European market and rebalance its profile towards non-life insurance’.
They added: ‘The underlying attractiveness of UK personal lines insurance is improving, with the motor insurance cycle hardening, [and there are] greater cost synergies generated from a potential in-market deal than an acquisition in a new geography.
‘We estimate [roughly] €120million cost saves [per annum] post-tax and assume an implementation cost of 1.5x of these potential cost synergies at [around] €180million.
‘We assume [approximately] €175million of diversified capital synergies from increased diversification benefit and model optimisation.’
