Direct Line, the UK insurer, has seen its share price surge by more than a third after it rejected a takeover offer from larger rival Aviva.
The non-binding cash and shares offer, which valued the struggling firm at £3.3bn, represented a 60% premium to the closing price for Direct Line’s shares on Monday 18 November – the day before it was made.
Direct Line said it saw the proposal as “highly opportunistic”, adding that it “substantially undervalued the company”.
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The company, which fended off a £3.17bn takeover attempt by Belgian rival Ageas earlier in the year, has suffered in the motor insurance sphere.
Rising claim costs and stiff competition, largely from online-only players with smaller cost bases, have taken a toll.
Earlier this month Direct Line, which includes the Churchill and Privilege brands, revealed a “series of initiatives” designed to slash its cost base, with 550 job losses included in the cuts.
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Its statement on Wednesday evening stated that it continued to make progress towards its financial and profitability targets under the turnaround plan.
Shares, which had plunged by 14% since Ageas ended its interest, rose by as much as 38% at the open on Thursday.
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Analysts did not expect the rejection of the offer to be the end of the matter, with the prospect of a possible bidding war in focus for investors.
A research note by the investment bank Peel Hunt said: “Aviva could be persuaded to sweeten the deal to 260p-265p, which may help satisfy the DLG board.
“There is downside risk to DLG’s standalone strategy and retaining some upside in an Aviva-DLG combination could be an attractive proposition, which is worth exploring in our view,” it concluded.
