Aviva and Direct Line Insurance Group anticipate £250 mn in one-off integration costs for their proposed £3.7 bn merger. These costs include savings through eliminating overlapping roles, according to Aviva’s statement.
The Aviva board expects annual pretax cost synergies of at least £125 mn by the third year after completion. These savings will build incrementally over three years and are separate from Direct Line’s earlier £100 mn annual cost-saving target.
Aviva estimates that 50% of synergies will come from cutting overlapping roles in shared services, head office, and senior management functions, along with related external cost reductions.
Another 30% will result from operational efficiencies and reduced role duplication across the combined insurance operations, leveraging the group’s larger scale. The remaining 20% will come from integrating IT platforms and rationalizing support teams.
The integration will merge Direct Line’s operations into Aviva’s U.K. personal lines business while retaining core brands such as Direct Line, Churchill, and Green Flag.
Aviva stated that 75% of integration costs will be incurred within the first two years post-merger. The company added that no significant dis-synergies are expected from the acquisition.
Aviva has reached a preliminary deal to acquire U.K. property and casualty insurer Direct Line Insurance Group for £3.51 bn.
Both companies disclosed the financial details of the potential acquisition, which involves Aviva purchasing Direct Line’s entire share capital.
The proposal values Direct Line shares at 275 pence each. This includes 129.7 pence per share in cash, funded through Aviva’s internal cash resources. Additionally, Direct Line shareholders would receive 0.2867 new Aviva shares for each Direct Line share, plus dividend payments of up to 5 pence per share, subject to Direct Line’s board approval before deal completion.
The £3.51 bn price reflects a 73.3% premium on Direct Line’s Nov. 27 closing share price and a 49.7% premium on the six-month volume-weighted average share price up to Nov. 27.
Direct Line’s board stated it remains confident in the company’s standalone prospects and its new leadership’s ability to execute the announced strategy. However, after consulting advisers and shareholders, the board acknowledged that the proposal’s value could warrant recommending it to shareholders if a formal offer is made. This recommendation depends on final agreement of all terms and the completion of reciprocal due diligence.
If the deal proceeds, Direct Line shareholders would hold about 12.5% of Aviva’s enlarged share capital.