Direct Line, one of Glasgow's major employers, has rejected an improved takeover bid from Ageas saying the Belgian offer continues to "significantly" undervalue the the UK insurance group.
The revised terms of the cash and shares offer received on March 9 implies a value of 237p per Direct Line share. This compares to an implied value of 233p per share in an initial offer rejected by Direct Line on February 28.
The latest offer comprises 120p in cash and one new Ageas share for every 28.41107 shares in Direct Line, valuing the business at about £3.2 billion. That is an approximate 3% premium to February's initial offer in which Ageas said it would hand over 100p in cash plus one newly issued Ageas share for every 25 Direct Line shares.
READ MORE: Talk of cost cuts makes uncomfortable reading for Direct Line staff
"The board considered the latest proposal with its advisers and continues to believe the latest proposal is uncertain, unattractive, and that it significantly undervalues Direct Line Group and its future prospects while also being highly opportunistic in nature," the company said yesterday. "Accordingly, the board unanimously rejected the latest proposal."
Directors under the leadership of new chief executive Adam Winslow added that they continues to have confidence in the group's stand-alone prospects despite sluggish profitability of late.
In September the group posted an operating loss of £78.1 million for the first six months of 2023, compared with a profit of £197m for the same period in 2022. Pre-tax losses in the first half also ballooned to £76.3m, compared with an £11m loss the previous year.
The company is due to publish it full-year results for 2023 a week from today, when it will also provide an update on "further initiatives to build on the operational improvements" implemented last year.
READ MORE: Direct Line to pay out £30m to overcharged home and car insurance customers
In a research note last month after the first takeover approach, analysts at Jefferies said Ageas would likely need to make an offer of 270p to 300p per share in order for it to be accepted. However, Jefferies' James Pearse said yesterday that the prospects of an offer reaching those expectations are now receding.
Ageas said it will continue to engage with the Direct Line board ahead of a March 27 deadline, which falls six days after Direct Line's results. Chief executive Hans De Cuyper described the latest offer as "compelling".
"Our improved possible offer delivers substantial cash proceeds to Direct Line shareholders, whilst ensuring they benefit from the material value creation that we believe the combination of the UK businesses of Ageas and Direct Line will deliver," he added.
The takeover battle follows a dismal period for Direct Line shareholders, who have suffered multiple profit warnings from the UK's second-largest motor insurance group. The company has about 10 million customers across all of its brands which also include Churchill, Green Flag, Privilege, Darwin, NIG, and DLG.
READ MORE: Major Scottish employer Direct Line rebuffs takeover bid
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. Two weeks later it was announced that former chief executive Penny James was leaving “with immediate effect” after almost four years in the job.
In September Direct Line said it would pay £30m in compensation to customers who were overcharged when they renewed their car or home insurance. The insurer said there had been an “error” in implementing new pricing rules that came into effect from the start of 2022.
A successful bid by Ageas would add to the list of UK insurers purchased by overseas buyers in recent years. In 2020 a consortium led by Intact acquired RSA, and a year later Finnish insurer Sampo bought home and motor insurer Hastings.
Direct Line employs more than 10,000 people in the UK, including roughly 1,000 staff in Scotland based predominantly in Glasgow.
Shares in the FTSE 250 group closed yesterday's trading 9.8p lower at 216p, a decline of more than 4%.
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