A new merger between two of the largest car insurance providers in the country could see drivers deal with pricing chaos in the near future.
Aviva and Direct Line have agreed on a takeover deal which will see Aviva pay 275p per share for its rival in a move that could shake up the insurance industry.
The deal, which would cost around £3.6billion, will see the combined group have more than 20 per cent of the total motor insurance market.
It comes amid negotiations between the two groups saw multiple offers rejected including a 250p offer last week and a 261p offer earlier this week.
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The two car insurance providers could potentially control more than 20 per cent of the market
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Danuta Gray, chair of the board at Direct Line, has been particularly involved in the process, having described the first offer as “highly opportunistic” and accusing Aviva of “substantially” undervaluing the business.
A joint statement from the two companies stated that the Board of Direct Line “carefully considered” the proposal with its advisers and consulted with its shareholders.
It added that the proposal was at a value “that it would be minded to recommend to Direct Line shareholders should a firm intention to make an offer” be made.
It added: “Aviva believes that an acquisition of Direct Line would be consistent with its strategy to accelerate growth in its UK businesses and further pivot the group towards capital-light business lines.”
Aviva said the merger would be good for its growth strategy
PA
The statement clarified that Aviva’s presence would be extended in the “attractive UK Personal Lines market” while also improving the efficiency of its service for customers.
Reacting to the announcement, one social media user said: “We’ve entered the cannibalisation phase of the market! It’s so cheap it’s going to start eating itself to death.”
Meanwhile, another X commenter said: “It’s official. Aviva takes over Direct Line. Significantly increases market concentration, should help rational pricing.”
The Financial Times reported that some analysts have suggested that the deal will be met with significant attention from competition authorities.
Many have suggested that the Competition and Markets Authority (CMA) could investigate, as it has done with the proposed merger between mobile networks Vodafone and Three.
Philip Kett, analyst at Jefferies, said: “This represents a swift conclusion … at a fair price, which we see as the best possible outcome, as it avoids the need for Aviva to pursue a hostile bid,” Reuters reported.
Another analyst, Michael Huttner, from Berenberg, said: “A potential combination of Aviva and Direct Line in UK retail motor insurance and UK house insurance would significantly increase market concentration in these key markets and likely lead to more rational pricing.”
In November, Direct Line announced that it would be axing around 550 jobs in a bid to cut costs at the company, which would see around six per cent of its workforce laid off.
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Direct Line announced it was cutting hundreds of jobs last month
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It is hoped that the move would save around £50million in 2025, after the Kent-based insurer announced that it had lost 400,000 customers compared to the same time last year.