Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Belgian insurer Ageas has said it is considering making a £3.1bn offer for Direct Line, the UK motor insurer that lost its chief executive last year after a string of profit warnings hammered its share price.
Ageas said on Wednesday it was examining a possible offer made up of cash and its own newly issued stock, amounting to an implied value of 233p per Direct Line share, a premium of 43 per cent to the UK group’s closing share price on Tuesday.
The takeover interest comes just two days before Direct Line’s new chief executive Adam Winslow starts in the job and faces the challenge of turning around the business after a bruising 18 months.
Penny James stepped down as Direct Line’s chief just over a year ago after the group scrapped its dividend following a period of rampant inflation in motor claims. It has since taken a series of steps to bolster its balance sheet, including agreeing a £520mn sale of its brokered commercial insurance unit last year.
Direct Line’s share price surged as much as 28 per cent following the announcement, while Ageas’s fell 2 per cent, as investors digested the terms of the possible deal.
Brussels-based Ageas said a deal would strengthen its position in the European market and help it rebalance towards non-life insurance business.
Analysts at Jefferies said the potential tie-up “makes sense”, arguing that Ageas and Direct Line’s combined UK insurance footprint would be likely to provide areas of shared cost savings without being big enough to alarm competition regulators.
It would be the latest in a series of takeovers of UK insurers in recent years. Hastings shareholders received a premium of 47 per cent to its share price when it was taken over in 2020, and Esure secured a 37 per cent premium two years earlier.
Ageas has 44,000 employees across 13 countries. Its UK operation is the sixth largest across car and home insurance, according to the company.
In its statement, Ageas said it was “confident in the underlying attractiveness and future opportunities of the UK personal lines sector”, despite a difficult time for the industry, which has faced spiralling inflation in claims costs.
Takeover rumours have swirled as Direct Line’s valuation has fallen, with its forward price-to-earnings ratio dropping to almost seven times last year from a 10-year average above 11 times, according to Bloomberg data.
Conditions in the UK insurance sector are now improving after companies pushed motor prices to an all-time high, according to a closely watched index.
Ageas said that over the past year in the UK “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”.
Direct Line is due to release its 2023 results at the end of next month.
Read the full article here