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Up to 2,300 jobs could be lost through the £3.7bn takeover of Direct Line by Aviva, its larger rival, according to a joint statement by the UK insurers.
On Monday, the boards of both companies announced they had reached agreement on the terms of a cash and shares approach first made by Aviva earlier this month.
Under the deal, Aviva will pay 129.7p in cash, and 0.2867 of its own shares for each Direct Line share. Direct Line shareholders will also receive a dividend of up to 5p per share before completion.
Direct Line, known for its mascot of a red phone on wheels, previously rejected 250p and 261p per share bids, before agreeing a preliminary deal with Aviva earlier this month, after the larger insurer sweetened its bid.
The acquisition, if approved by shareholders, will create a £16bn insurance company that will dominate the motor and home markets in the UK, with shares of more than 20 per cent and 15 per cent, respectively.
Dame Amanda Blanc, chief executive officer of Aviva, described the deal as “excellent news for the customers and shareholders of Aviva and Direct Line”.
Danuta Gray, chair of Direct Line, said the board was pleased to recommend Aviva’s offer for the company, which delivered “significant value for Direct Line Shareholders”.
On Monday, Aviva said it expected to deliver £125mn in savings each year, before tax, within three years of the deal’s completion, including by cutting overlapping job roles and integrating back-office systems. The deal is currently earmarked to be completed next year.
The combined group is expected to shed between 5-7 per cent of its total workforce, putting as many as 2,300 jobs at risk. Aviva said it expected staff losses through natural attrition, however, adding that the insurer already had about 800 existing vacancies, which it said would “mitigate” the reductions identified.
According to their last annual reports, Aviva employed 23,000 people while Direct Line employed more than 10,000.
The deal is also likely to be reviewed by the Prudential Regulation Authority and Competition Markets Authority, given the scale of the combined business and dominance in the home and motor markets.
“With Direct Line’s revenue streams coming from such consumer facing markets, and the backdrop of a cost of living crisis, it is entirely possible that the CMA will want to take its time in reviewing the proposed acquisition by Aviva,” said MKP Advisors in a note on the deal on Monday.
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