CMA to investigate Aviva’s £3.7bn Direct Line deal
The UK’s competition watchdog has begun an investigation into insurance giant Aviva’s proposed £3.7bn acquisition of Direct Line.
The Competition and Markets Authority said it had commenced its phase one inquiry to establish whether the deal would result in a “realistic prospect of a substantial lessening of competition.”
The CMA has invited comment on the deal from interested parties until the end of May and has set a deadline of 10 July to make a decision.
That means the merger will either be cleared in July or move to a more in-depth, phase two investigation in which the parties will have the opportunity to submit remedies.
Aviva and Direct Line reached an agreement on the terms of a possible takeover in December 2024, which valued Direct Line shares at 275p, a 73 per cent premium on the firm’s share price prior to the offer and a 50 per cent premium on its six-month average share price.
Under the deal, Direct Line shareholders would receive 129.7 pence in cash, plus 0.3 new Aviva shares and a 5p dividend for each Direct Line share owned.
Direct Line had rejected an earlier offer from Aviva that would have valued its stock at 250p per share.
Aviva said there was a “compelling strategic rationale…further accelerating capital-light growth and customer ambitions in line with Aviva’s strategy”, adding that the merger would be expected to deliver as much as £125m in cost synergies.
Founded in 1985, Direct Line began its life as the insurance division of the Royal Bank of Scotland before being floated on the stock exchange as a standalone business in 2012.
CMA wings clipped
News of the CMA’s investigation comes as the government seeks to pare back the power of the UK’s biggest regulators to spur economic growth.
The watchdog is one of 17 regulators the government has instructed to lay out proposals on how to ease the burden on businesses to help turbocharge growth.
In January, the CMA’s chair, Marcus Bokkerink, was forced to step down from the role at the behest of business secretary Jonathan Reynolds as government ministers sought to emphasise their pro-growth message.
Reynolds said: “This government has a clear plan for change – to boost growth for businesses and communities across the UK. As we’ve set out, we want to see regulators including the CMA supercharging the economy with pro-business decisions that will drive prosperity and growth, putting more money in people’s pockets.”