Aviva Plc, a leading British insurer, has announced its agreement to acquire Direct Line Insurance Group Plc in a deal valued at approximately £3.7 billion ($4.65 billion). This strategic acquisition is set to create the largest motor insurer in the UK, surpassing competitors such as Admiral. The transaction, which involves a combination of cash and shares, values each Direct Line share at 275 pence, representing a significant premium of about 73% over the closing price on November 27, when initial reports of the takeover emerged.

Under the terms of the deal, Direct Line shareholders will receive 0.2867 new Aviva shares, 129.7 pence in cash, and up to 5 pence in dividends for each share they hold. This arrangement will result in Direct Line shareholders owning approximately 12.5% of the enlarged group. The acquisition is expected to be completed by mid-2025, pending regulatory approvals and other customary conditions.

Aviva's CEO, Amanda Blanc, expressed optimism about the acquisition, highlighting that it aligns with Aviva's strategy to accelerate growth in capital-light businesses. The deal is anticipated to enhance Aviva's earnings per share by around 10% once cost synergies of £125 million are fully realized. Additionally, Aviva plans to maintain its solvency II shareholder cover ratio at the upper end of its working range, with expectations of material capital synergies over time.

Direct Line, which has been pursuing a turnaround strategy, views the offer as an attractive valuation, especially considering the risks associated with its ongoing transformation. The company's board has unanimously recommended the offer to its shareholders, citing the significant value it delivers.

The acquisition has drawn attention in the financial markets, with Direct Line shares rising by as much as 3.6% in early trading following the announcement. Meanwhile, Aviva shares have experienced a slight decline. The deal has also sparked interest in the broader UK mergers and acquisitions landscape, which has seen a notable increase in activity this year.

Advisors for the transaction include Citigroup Inc. and Goldman Sachs Group Inc. for Aviva, while Direct Line is being advised by Morgan Stanley, Robey Warshaw, and the Royal Bank of Canada. The acquisition is not expected to impact Aviva's credit ratings, and the company anticipates maintaining liquidity above £1 billion.

This acquisition marks a significant step for Aviva, which has been actively pursuing growth opportunities following a series of divestments. The company recently entered the Lloyd's insurance market and acquired AIG Life Ltd.'s UK protection business. The move to acquire Direct Line further solidifies Aviva's position in the UK insurance market, offering a comprehensive range of insurance products under its expanded portfolio.