13th Mar 2024 15:01
(Alliance News) - Jefferies thinks the prospects for a bid for Direct Line Insurance Group PLC matching the company's expectations are fading after a modestly improved offer by Ageas SA.
On Wednesday, Ageas launched a fresh approach for Direct Line Insurance Group which it described as "compelling".
Ageas Chief Executive Hans De Cuyper said the improved possible offer "delivers substantial cash proceeds to Direct Line shareholders, whilst ensuring they benefit from the material value creation that we believe the combination of the UK businesses of Ageas and Direct Line will deliver".
But the Bromley, England-based motor and home insurer rejected the modestly improved terms.
Direct Line said the latest proposal, received on Saturday, comprised 120 pence in cash and one new Ageas share for every 28.4 Direct Line share.
At the closing share price last Friday, the day before the proposal was received, this implied a value of 237p per Direct Line share. The offer would value all of Direct Line around GBP3.07 billion.
Ageas said the new offer valued each Direct Line share at 239p, as per closing share prices on Tuesday.
It noted the offer's increased cash element and pointed out that share element would give Direct Line shareholders 20% ownership of the enlarged Ageas group.
Ageas said it will continue to seek engagement from the Direct Line in order to "work collaboratively" towards a recommended bid.
Late February, Ageas made an initial approach with an implied a value of 233p per Direct Line share and 231p currently, so the new offer represents a 2.6% improvement.
In response to the latest rejected bid, shares in Direct Line were down 6.0% to 212.29p each in London on Wednesday afternoon.
Shares in Ageas were up 0.5% to EUR39.76 each in Brussels.
Direct Line described the Ageas proposal as "uncertain" and "unattractive", and said it "significantly undervalues" Direct Line and its future prospects.
Direct Line said it was "confident" in its standalone prospects.
Jefferies said with the second offer from Ageas valuing Direct Line at only 237p per share, the prospects of a bid reaching its expectation of 270p-300p are receding.
The broker pointed out the second offer is only 3% higher than the first, and this in part is because the implied value of the first offer has fallen by 1%.
The broker noted one redeeming feature about the offer is that the cash component has been lifted by 20% from 100p to 120p per share.
However, this is offset by reducing the amount of shares in Ageas being offered, with the ratio deteriorating from 1 new Ageas share per 25, to 1 per 28.
In essence, Ageas are shifting the value from shares to cash, with the total value only slightly rising, it explained.
Unsurprisingly, given the strength of management's pushback to the initial offer, this second offer has also been unanimously rejected, Jefferies said.
By Jeremy Cutler, Alliance News reporter
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