Direct Line Rejects Ageas Again: Puts A Range Of Parties Into Play

Direct Line (DLG LN) rejects second Ageas (AGS BB) takeover offer, which isn’t a “knockout”, puts a range of parties into play, we feel.

• Ageas has come back to offer GB237p/share for Direct Line, up from 233p on 28-Feb, but this one is 120p in cash (from 100p before).
• DLG’s board sees the offer as “uncertain”, “highly conditional” and is “confident” in the group’s standalone prospects therefore seeing the bid as unattractive. In fairness, this isn’t much of an uplift in the bid and not what we’d view as “knockout”.
• What this does do is put smaller P&C insurers under the M&A spotlight, which is generally positive for spreads (look at Virgin Money’s post-the Nationwide bid).
• It also casts an eye towards Ageas, as some may see the bid as being an admission it’s running out of growth. Ageas’s market cap is EUR7.5bn so there is a range of larger insurers across Europe and the US (let alone wider financial groups) that may be interested. This could well support Ageas’s curve though it’s tightened quite meaningfully YTD (40-80bp) and over the last month (10-30bp) already.