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UK car insurance company Direct Line has rejected a takeover approach from Aviva, saying the cash and shares offer was “highly opportunistic” and “substantially” undervalued the business.

Aviva, one of Britain’s largest insurance groups, said on Wednesday evening it had submitted a proposal offering 112.5 pence in cash and 0.282 new Aviva shares for every Direct Line share.

The non-binding proposal represented total consideration of 250p for each Direct Line share, and values the company’s equity at about £3.3bn.

Aviva, which has more than 18mn customers, said its offer represented a 57.5 per cent premium to Direct Line’s closing share price of 158.7p on Wednesday.

The board of Direct Line, the first car insurer in the UK to sell direct to customers rather than through brokers, said it rejected Aviva’s proposal on Tuesday after concluding “it was highly opportunistic and substantially undervalued the company”.

The approach comes as Direct Line is part way through a turnaround plan after its business was badly hit by a post-pandemic surge in the cost of claims.

It is the second time this year Direct Line has been the subject of a takeover approach. In February it rejected a £3.1bn offer from Belgian insurer Ageas.

Aviva said the proposed acquisition of Direct Line would “accelerate growth” in its UK businesses, and deliver “material cost and capital synergies, incremental to Direct Line’s existing cost savings programme”.

“Aviva believes that an acquisition of Direct Line would deliver attractive returns for both Aviva and Direct Line shareholders, including unlocking value that is inaccessible to Direct Line standalone,” it added.

But Direct Line’s board said it “has considerable conviction in the capabilities of our newly established leadership team and stands firmly behind their delivery of our strategy”.

“Under this strategy, the company continues to make early progress towards our financial targets, and expects to deliver attractive growth in profitability, capital generation and shareholder returns,” it added.

Direct Line chief executive Adam Winslow, who took the position this year, was previously a senior executive at Aviva.

In July, Winslow announced a shift in strategy to focus on motor, home, commercial business and car breakdown cover, and reiterated the group’s target of making at least £100mn in cost savings by the end of 2025.

This month Direct Line announced it was cutting about 550 jobs, about 6 per cent of the insurer’s 9,000 strong workforce. 

Under UK takeover rules, Aviva now has until December 25 to make a firm offer for Direct Line or walk away from a deal.