REG - Aviva PLC Direct Line Ins Grp - Offer for Direct Line Insurance Group plc
23/12/2024 07:00
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RNS Number : 0926R Aviva PLC 23 December 2024
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INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE
A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION
This announcement contains inside information
FOR IMMEDIATE RELEASE
23 December 2024
RECOMMENDED CASH AND SHARE OFFER
For Direct Line insurance group plc ("Direct line")
BY AVIVA PLC ("AVIVA")
to be effected by means of a Scheme of Arrangement
under Part 26 of the Companies Act 2006
· The boards of Aviva and Direct Line are pleased to announce they have
reached agreement on the terms of a recommended cash and share offer for
Direct Line (the "Acquisition").
· The Acquisition builds on Aviva's strong performance over the last four
years, with Aviva having been transformed into a high-performing business with
a clear strategy. The Acquisition will accelerate Aviva's momentum and will
offer customers and shareholders a number of benefits as set out below.
· Under the terms of the Acquisition, each Direct Line Shareholder will
be entitled to receive:
For each Direct Line Share held: 0.2867 New Aviva Shares;
129.7 pence in cash; and
up to 5 pence (in aggregate) in the form of dividend payments to be paid
(subject to the approval of the Direct Line Board) prior to Completion
(together, the "Offer Consideration")
· Based on the Closing Price of Aviva Shares of 489.3 pence on 27
November 2024 (being the last closing share price before the commencement of
the Offer Period), this values each Direct Line Share at 275 pence and values
the entire diluted share capital of Direct Line at approximately £3.7
billion.
· This represents a premium of approximately:
° 73.3 per cent. to the Closing Price of 158.7 pence per Direct Line
Share on 27 November 2024; and
° 49.7 per cent. to the six month volume weighted average price of
183.7 pence per Direct Line Share to 27 November 2024.
· Upon Completion, it is expected that Aviva Shareholders will own
approximately 87.5 per cent. and Direct Line Shareholders will own
approximately 12.5 per cent. of the issued and to be issued share capital of
Aviva.
Aviva and Direct Line have agreed certain arrangements with regard to the
payment of further dividends and returns of capital prior to the Effective
Date. Further details are set out in paragraph 11 (Dividends).
Commenting on the Acquisition, Dame Amanda Blanc, Group Chief Executive
Officer of Aviva, said:
"This deal is excellent news for the customers and shareholders of Aviva and
Direct Line. It builds on our track record of delivering four years of strong
financial performance and, in line with our strategy, it accelerates our
growth in capital light business.
Aviva and Direct Line share a deep commitment to excellence in looking after
customers, and this will remain a top priority following the Acquisition. The
financial strength and scale of the Combined Group means customers will
benefit from competitive pricing, an enhanced claims experience and even
better service.
The acquisition of Direct Line by Aviva will bring together a number of the
UK's leading brands in a more efficient business, which is very well
positioned to generate strong returns for all shareholders."
Commenting on the Acquisition, Danuta Gray, Chair of Direct Line, said:
"The Board of Direct Line is pleased to recommend Aviva's offer for the
company, which delivers significant value for Direct Line Shareholders. The
offer represents a substantial premium and reflects the attractiveness of
Direct Line, a high quality business with powerful insurance brands, excellent
customer focus, and exceptional people.
The Board of Direct Line has been very pleased with the progress made by its
new management team, but Direct Line is in the early stages of an extensive
turnaround, and it believes the offer allows Direct Line Shareholders to
realise the value of their investment in the near term. Direct Line's
customers and employees will be joining an established, successful business
with a wide array of insurance products that is well-placed to deliver for all
its stakeholders."
Adam Winslow, Chief Executive Officer of Direct Line, commented:
"Direct Line is an excellent business, home to many well-loved insurance
brands, and this year we have made fast progress on our turnaround strategy.
Bringing Direct Line and Aviva together offers the opportunity to create a
strengthened and enlarged business, with both organisations sharing a deep
passion for serving customers and for supporting their people. In a highly
competitive UK general insurance marketplace, the combined entity will be very
well placed to deliver for its customers. I am proud of what Direct Line has
achieved to date, and this offer will enable the business to continue to
succeed as part of a combined group with Aviva."
Background to and reasons for the Acquisition
In 2020, Aviva announced its strategic priorities, including plans to simplify
its operations and become a leading Insurance, Wealth, and Retirement
business. Since then, Aviva has refocused its portfolio on its core markets in
the UK, Ireland and Canada, aiming to deliver profitable growth for
shareholders whilst maintaining the financial strength to reinvest in the
business, selectively pursue M&A and deliver additional shareholder
returns.
As part of this strategy, Aviva has executed eight international disposals,
rebuilt its financial strength, and enhanced its core businesses with bolt-on
M&A, providing greater scale and capabilities. The proceeds from the
disposals, combined with strong operational execution, have enabled Aviva to
return £9 billion to shareholders between 2020 and 2023, while positioning
the Aviva Group as the UK's leading diversified insurer across Insurance,
Wealth and Retirement.
The Acquisition builds on Aviva's strong momentum and is expected to result in
the following benefits:
· Creating a leading UK Personal Lines franchise: the Combined
Group will be well-positioned to address this attractive market segment, which
generated at least £26 billion of gross written premium ("GWP") in 2023, and
will be able to build on the strong momentum delivered to date by Aviva's
Personal Lines management team.
· Accelerating Aviva's capital-light strategy: surpassing the
existing ambition of generating 70 per cent. of operating profits from
capital-light businesses by 2026.
· Delivering better outcomes for customers: including competitive
pricing, faster claims payments supported by stronger supply chains, a
comprehensive range of products and services, advanced digital capabilities
and greater investment in technology.
· Creating significant value for Aviva and Direct Line
shareholders: expected EPS accretion of ~10 per cent. once pre-tax cost
synergies of £125 million are fully realised, with underlying EPS accretion
expected from the first full year post-Completion.
· Enhancing shareholder distributions: as part of its commitment
to shareholder returns, Aviva currently intends to declare a mid-single digit
percentage uplift in the dividend per share following Completion. Aviva
further intends to maintain the current guidance of mid-single digit growth in
the cash cost of the dividend from this rebased level.
The Acquisition is also consistent with Aviva's capital management framework.
Aviva expects its Solvency II shareholder cover ratio to remain at the upper
end of the Aviva Group's working range, with upside from material capital
synergies over time. The Acquisition is not expected to impact the Aviva
Group's credit ratings and Aviva expects centre liquidity to remain above £1
billion, in line with its capital management framework.
Background to and reasons for the recommendation
Direct Line is one of the UK's leading general insurance companies, with a
leading personal lines customer franchise, scaled market positions and some of
the most recognisable brands in the market across a complementary and diverse
portfolio.
Direct Line recently appointed a new, highly experienced senior leadership
team to execute an ambitious turnaround strategy aimed at unlocking value by
achieving attractive and sustainable growth in profitability, capital
generation and shareholder returns after a period of disappointing
performance. This strategy builds on Direct Line's strong foundations.
Following Adam Winslow's appointment as Direct Line's CEO and the completion
of a comprehensive strategic review across the Direct Line Group, Direct Line
outlined its strategy at its Capital Markets Day in July 2024. This strategy
focused on accelerating a turnaround to target leading positions in Direct
Line's core markets of Motor, Home, Commercial Direct and Rescue, and building
a strong culture of performance.
As recently evidenced in Direct Line's H1 2024 and Q3 2024 trading updates,
Direct Line has demonstrated early progress in executing this turnaround
strategy at pace. This includes a return to group profitability in H1 2024, a
well-developed product build for the launch of the Direct Line brand on price
comparison websites ("PCW") for Motor, further progress on re-platforming the
Home segment and the implementation of a series of initiatives supporting the
expected delivery of around £50 million of gross cost savings in 2025. In
doing so, Direct Line has demonstrated material progress towards the Direct
Line Group's target of delivering at least £100 million gross run-rate cost
savings by the end of 2025.
Despite this early strategic progress, the Direct Line Directors do not
believe that Direct Line's share price and valuation was appropriately
reflecting the potential for the business, with Direct Line's share price
trading close to a 12-month low prior to Aviva's initial approach regarding a
possible offer for Direct Line in November 2024.
Against this backdrop, whilst the Direct Line Directors have considerable
conviction in the delivery of Direct Line's turnaround strategy under its new
senior leadership team, it has concluded, alongside its advisers and following
extensive consultation with Direct Line Shareholders during the Offer Period,
that Aviva's offer to acquire Direct Line delivers Direct Line Shareholders an
attractive valuation of Direct Line today when taking into account the risks
inherent in a multi-year turnaround and the prevailing market backdrop.
In considering the terms of the offer, the Direct Line Directors have taken
into account a number of factors, including the premium and the consideration
mix, and offering Direct Line Shareholders exposure to the significant
synergies and substantial additional value upside potential in the Combined
Group which are expected to accrue to these shareholders in excess of
receiving an attractive headline premium on Completion.
Recommendation
The Direct Line Directors, who have been so advised by Morgan Stanley, Robey
Warshaw LLP and RBC Capital Markets as to the financial terms of the
Acquisition, consider the terms of the Acquisition to be fair and reasonable.
In providing their advice to the Direct Line Directors, Morgan Stanley, Robey
Warshaw LLP and RBC Capital Markets have taken into account the commercial
assessments of the Direct Line Directors. Morgan Stanley and Robey Warshaw LLP
are providing independent financial advice to the Direct Line Directors for
the purposes of Rule 3 of the Takeover Code.
Accordingly, the Direct Line Directors intend to recommend unanimously that
Direct Line Shareholders vote (or procure votes) in favour of the Scheme at
the Court Meeting and to vote (or procure votes) in favour of the Direct Line
Resolution(s) at the General Meeting (or, in the event the Acquisition is
implemented by way of a Takeover Offer, to accept, or procure acceptance of,
such Takeover Offer) as the Direct Line Directors who (or whose immediate
family) beneficially hold Direct Line Shares have irrevocably undertaken to do
(or procure to be done) in respect of their entire beneficial holdings of
556,447 Direct Line Shares in total, representing in aggregate approximately
0.04 per cent. of Direct Line's ordinary share capital in issue as at the
Latest Practicable Date. These irrevocable undertakings remain binding in the
event a higher competing offer is made for Direct Line by a third party.
Aviva Board Statement
The Acquisition constitutes a "significant transaction" for Aviva for the
purposes of the Listing Rules and this Announcement constitutes a notification
pursuant to Chapter 7 of the Listing Rules.
The Aviva Directors believe that the Acquisition is in the best interests of
Aviva Shareholders as a whole.
Information relating to Aviva
Aviva is one of the UK's leading diversified insurers across Insurance, Wealth
and Retirement, with 19.2 million customers in the UK, Ireland and Canada.
Aviva's purpose is to protect the things that matter most to its customers:
their homes and belongings, their health and wealth, their future and their
families. Aviva has a clear strategy to achieve its purpose based on
accelerating its growth in capital light business, providing a digitally-led
customer experience, efficiency and sustainability. As at 30 June 2024, the
total group assets under management of the Aviva Group were £398 billion,
the estimated Solvency II shareholder capital surplus was £8.2 billion and
the Aviva Group's solvency capital ratio (shareholder view) was 205 per cent.
Information relating to Direct Line
Direct Line is one of the UK's leading insurance companies. The Direct Line
Group's vision is to create a world where insurance is personal, inclusive and
a force for good. Through its well-known brands which include Direct Line,
Churchill, Privilege, Darwin, Direct Line for Business and Green Flag, Direct
Line helps people to carry on with their lives, giving them peace of mind now
and in the future. Its brands offer a wide range of general insurance products
across Motor, Home, Commercial Direct, Travel, Pet and Rescue, both direct to
customers and through PCW and it underwrites insurance products distributed by
its third-party partners. The Direct Line Group believes that by embracing
sustainable practices it creates a better corporate culture able to provide
more reliable products and bring long-term rewards for its customers, people
and shareholders. For the year ended 31 December 2023, the Direct Line Group
generated GWP and associated fees of £3.1 billion. As at 30 June 2024, the
estimated Solvency II shareholder capital surplus was £1.1 billion and the
Direct Line Group's solvency capital ratio (shareholder view) was 198 per
cent.
Timetable and Conditions
· It is intended that the Acquisition will be effected by way of a
Court-sanctioned scheme of arrangement under Part 26 of the Companies Act.
However, Aviva reserves the right to elect to implement the Acquisition by way
of a Takeover Offer, subject to the consent of the Panel (where necessary) and
the terms of the Co-operation Agreement.
· The Acquisition is conditional on, among other things, the approval of
the requisite majority of the Scheme Shareholders at the Court Meeting and
Direct Line Shareholders at the General Meeting. In order to become Effective,
the Scheme must be approved by a majority in number of the Scheme Shareholders
present and voting at the Court Meeting, either in person or by proxy,
representing at least 75 per cent. in value of the Scheme Shares voted. In
addition, the approval of the Direct Line Resolution(s) by Direct Line
Shareholders representing at least 75 per cent. of votes cast at the General
Meeting (expected to be held immediately after the Court Meeting) is also
required for the implementation of the Scheme. Following the Court Meeting,
the Scheme must also be sanctioned by the Court. Finally, a copy of the Court
Order must be delivered to the Registrar of Companies, upon which the Scheme
will become Effective. The Scheme must become Effective by no later than the
Long Stop Date.
· The Acquisition will be made in accordance with the Takeover Code and
on the terms and subject to the Conditions which are set out in Appendix 1 to
this Announcement and on the further terms and conditions that will be set out
in the Scheme Document, including approvals from the PRA, the FCA and the CMA.
· A short extension to the customary 28-day period for publication of the
Scheme Document has been requested of, and consented to by, the Panel having
regard to, amongst other things, the time required to report on the new Aviva
2025 Profit Forecast, the availability of Court dates and ensuring that the
Scheme Document contains the most recent information as at the time of the
Court Meeting and General Meeting. Accordingly, it is expected that the Scheme
Document containing further information about the Acquisition and notices of
the Court Meeting and the General Meeting, and which will be accompanied by
the Forms of Proxy, will be published beginning-mid February 2025. The Court
Meeting and General Meeting are expected to be held in March 2025. The Scheme
Document will specify the actions to be taken by Direct Line Shareholders and
will contain an expected timetable for the implementation of the Scheme.
· The Scheme is expected to become Effective in mid-2025, subject to the
satisfaction or, where permitted, waiver of the Conditions set out in Appendix
1 to this Announcement.
This summary should be read in conjunction with, and is subject to, the full
text of this Announcement and its Appendices.
The Acquisition will be subject to the Conditions and further terms set out in
Appendix 1 to this Announcement and to the full terms and conditions which
will be set out in the Scheme Document. Appendix 2 to this Announcement
contains the sources of information and bases of calculations of certain
information contained in this Announcement. Appendix 3 contains a summary of
the irrevocable undertakings received in relation to this Acquisition. For a
discussion of the risks to Aviva as a result of the Acquisition see Appendix
4. Information relating to the Quantified Financial Benefits Statement made in
this Announcement and the reports of the Aviva reporting accountants and
financial advisers are set out in Appendix 5. Appendix 6 contains a
confirmation from the Aviva Directors in respect of the Aviva 2026 Profit
Forecast. Appendix 7 contains definitions of certain expressions used in this
summary and in this Announcement.
For the purposes of Rule 28 of the Takeover Code, quantified financial
benefits statements contained in this Announcement are the responsibility of
Aviva and the Aviva Directors. Appendix 5 sets out the anticipated quantified
financial benefits relating to cost savings and synergies arising out of the
Acquisition and provides underlying information and bases of belief. Appendix
5 also includes reports from Aviva's reporting accountant, PwC, and its joint
financial advisers, Goldman Sachs International and Citi, in connection with
the anticipated quantified financial benefits statements, as required pursuant
to Rule 28.1(a) of the Takeover Code, and provides underlying information and
bases for the reporting accountants' and financial advisers' respective
reports. Each of PwC, Goldman Sachs International and Citi has given and not
withdrawn its consent to the publication of its report in this Announcement in
the form and context in which it is included.
Enquiries:
Aviva
Media
Andrew Reid +44 (0)7800 694 276
Sarah Swailes +44 (0)7800 694 859
Investors and analysts
Greg Neilson +44 (0)7800 694 564
Joel von Sternberg +44 (0)7384 231 238
Michael O'Hara +44 (0)7387 234 388
Citigroup Global Markets Limited (Joint Financial Adviser and Joint Corporate
Broker to Aviva)
Peter Brown / Sian Evans / Peter Catterall / Michael Lamb +44 (0)20 7986 4000
Goldman Sachs International (Joint Financial Adviser and Joint Corporate
Broker to Aviva)
Anthony Gutman / Nimesh Khiroya / Bertie Whitehead +44 (0)20 7774 1000
Direct Line Group
Media
Roger Lowry (Director of Corporate Affairs) +44 (0)7881 553 155
Investors and analysts
Dhruv Gahlaut, CFA (Chief Strategy & Investor Relations Officer) +44 (0)7385 481177
Morgan Stanley (Joint Lead Financial Adviser and Joint Corporate Broker to
Direct Line)
Ben Grindley / Laurence Hopkins / Melissa Godoy / Jonathan Gold +44 (0) 20 7425 8000
Robey Warshaw LLP (Joint Lead Financial Adviser to Direct Line)
Simon Robey / Chetan Singh / Kunal Ranpara +44 (0) 20 7317 3999
RBC Capital Markets (Joint Financial Adviser and Joint Corporate Broker to
Direct Line)
Oliver Hearsey / Daniel Ohana / Elliot Thomas +44 (0) 20 7653 4000
Brunswick Group (PR Adviser to Direct Line)
Tom Burns / Diana Vaughton / Freya Semken +44 (0)20 7404 5959
Clifford Chance LLP is acting as legal adviser to Aviva and Slaughter and May
is acting as legal adviser to Direct Line.
Important notices about financial advisers
Citigroup Global Markets Limited ("Citi"), which is authorised by the
Prudential Regulation Authority ("PRA") and regulated in the UK by the
Financial Conduct Authority ("FCA") and the PRA is acting as financial adviser
exclusively for Aviva and for no one else in connection with the matters
described in this Announcement, and will not be responsible to anyone other
than Aviva for providing the protections afforded to its clients nor for
providing advice in relation to the matters referred to in this Announcement.
Neither Citi nor any of its affiliates, directors or employees owes or accepts
any duty, liability or responsibility whatsoever (whether direct or indirect,
consequential, whether in contract, tort, in delict, under statute or
otherwise) to any person who is not a client of Citi in connection with this
Announcement, any statement contained herein or otherwise.
Goldman Sachs International, which is authorised by the PRA and regulated by
the FCA and the PRA in the United Kingdom, is acting exclusively for Aviva and
no one else in connection with the matters referred to in this Announcement
and will not be responsible to anyone other than Aviva for providing the
protections afforded to clients of Goldman Sachs International, or for
providing advice in connection with the matters referred to in this
Announcement.
Morgan Stanley & Co. International plc ("Morgan Stanley"), which is
authorised by the PRA and regulated by the PRA and the FCA in the United
Kingdom, is acting exclusively for Direct Line and for no one else in
connection with the possible offer and neither Morgan Stanley nor any of its
affiliates, nor their respective directors, officers, employees or agents will
be responsible to anyone other than Direct Line for providing the protections
afforded to its clients or for providing advice in relation to the possible
offer, the contents of this Announcement or any other matters referred to in
this Announcement.
Robey Warshaw LLP, which is authorised and regulated in the United Kingdom by
the FCA, is acting as financial adviser exclusively for Direct Line and no one
else in connection with the matters referred to in this Announcement and will
not regard any other person as its client in relation to the matters referred
to in this Announcement and will not be responsible to anyone other than
Direct Line for providing the protections afforded to clients of Robey Warshaw
LLP, nor for providing advice in relation to the matters referred to in this
Announcement.
RBC Europe Limited, which is authorised by the PRA and regulated by the PRA
and the FCA in the United Kingdom, is acting exclusively for Direct Line and
for no one else in connection with the possible offer and neither RBC Europe
Limited nor any of its affiliates, nor their respective directors, officers,
employees or agents will be responsible to anyone other than Direct Line for
providing the protections afforded to its clients or for providing advice in
relation to the possible offer, the contents of this Announcement or any other
matters referred to in this Announcement.
Inside Information
This Announcement contains inside information as stipulated under the Market
Abuse Regulations (EU) No. 596/2014 as it forms part of UK law by virtue of
the European Union (Withdrawal) Act 2018. Upon the publication of this
Announcement via a Regulatory Information Service, this inside information
will be considered to be in the public domain.
The person responsible for making this Announcement on behalf of Aviva is
Susan Adams, Company Secretary.
The person responsible for making this Announcement on behalf of Direct Line
is Jane Poole, Chief Financial Officer.
Further Information
This Announcement is for information purposes only and is not intended to and
does not constitute, or form part of, any offer to sell or an invitation to
purchase any securities; a solicitation of an offer to buy, otherwise acquire,
subscribe for, sell or otherwise dispose of any securities pursuant to the
Acquisition or otherwise; or the solicitation of any vote or approval in any
jurisdiction pursuant to the Acquisition or otherwise; nor shall there be any
purchase, sale, issuance or exchange of securities or such solicitation in any
jurisdiction in which such offer, solicitation, sale issuance or exchange is
unlawful. The Acquisition will be made solely by means of the Scheme Document
(or, if the Acquisition is implemented by way of a Takeover Offer, the offer
document) which, together with any related Forms of Proxy, will contain the
full terms and conditions of the Acquisition, including details of how to vote
in respect of the Scheme. Any decision in respect of, or other response to,
the Acquisition should be made only on the basis of the information contained
in the Scheme Document (or, if the Acquisition is implemented by way of a
Takeover Offer, the offer document).
Direct Line will prepare the Scheme Document to be distributed to Direct Line
Shareholders. Direct Line and Aviva urge Direct Line Shareholders to read the
Scheme Document (or any other document by which the Acquisition is made) in
full when it becomes available because it will contain important information
relating to the Acquisition, including details of how to vote in respect of
the Scheme.
The statements contained in this Announcement are made as at the date of this
Announcement, unless some other time is specified in relation to them, and
publication of this Announcement shall not give rise to any implication that
there has been no change in the facts set forth in this Announcement since
such date.
This Announcement does not constitute a prospectus or prospectus equivalent
document.
Overseas jurisdictions
The release, publication or distribution of this Announcement in jurisdictions
other than the United Kingdom, and the availability of the Acquisition to
Direct Line Shareholders who are not resident in the United Kingdom, may be
restricted by the laws of those jurisdictions and therefore persons into whose
possession this Announcement comes should inform themselves about and observe
such restrictions. In particular, the ability of persons who are not resident
in the United Kingdom to vote their Direct Line Shares with respect to the
Scheme at the Court Meeting, or to execute and deliver forms of proxy
appointing another to vote at the Court Meeting on their behalf, may be
affected by the laws of the relevant jurisdictions in which they are located.
Further details in relation to Overseas Shareholders will be contained in the
Scheme Document (or, if the Acquisition is implemented by way of a Takeover
Offer, the offer document). Any failure to comply with any such restrictions
may constitute a violation of the securities laws of any such jurisdiction. To
the fullest extent permitted by applicable law, the companies and persons
involved in the Acquisition disclaim any responsibility or liability for the
violation of such restrictions by any person.
Unless otherwise determined by Aviva or required by the Takeover Code, and
permitted by applicable law and regulation, the Acquisition will not be made
available, directly or indirectly, in, into or from a Restricted Jurisdiction.
Accordingly, copies of this Announcement and all documents relating to the
Acquisition are not being, and must not be, directly or indirectly, mailed or
otherwise forwarded, distributed or sent in, into or from a Restricted
Jurisdiction, and persons receiving this Announcement and all documents
relating to the Acquisition (including custodians, nominees and trustees) must
not mail or otherwise distribute or send them in, into or from such Restricted
Jurisdiction. If the Acquisition is implemented by way of Takeover Offer
(unless otherwise permitted by applicable law or regulation), the Takeover
Offer may not be made, directly or indirectly, in or into, or by use of mails
or any other means or instrumentality (including, without limitation,
facsimile, e-mail or other electronic transmission, telex or telephone) of
interstate or foreign commerce of, or any facility of a national, state or
other securities exchange of any Restricted Jurisdiction and the Takeover
Offer will not be capable of acceptance by any such use, means,
instrumentality or facilities or from within any Restricted Jurisdiction.
This Announcement has been prepared in connection with proposals in relation
to a scheme of arrangement pursuant to and for the purpose of complying with
English law and the Takeover Code and information disclosed may not be the
same as that which would have been disclosed if this Announcement had been
prepared in accordance with the laws of jurisdictions outside the United
Kingdom. Nothing in this Announcement should be relied on for any other
purpose.
The Acquisition shall be subject to the applicable requirements of the
Takeover Code, the Panel, the London Stock Exchange and the FCA.
Additional information for US investors
The Acquisition relates to the shares of an English company and is being made
by means of a scheme of arrangement provided for under English company law. A
transaction effected by means of a scheme of arrangement is not subject to the
tender offer or proxy solicitation rules under the US Securities Exchange Act
of 1934 (the "US Exchange Act"). Accordingly, the Acquisition is subject to
the disclosure requirements and practices applicable in the United Kingdom to
schemes of arrangement which differ from the disclosure requirements of the US
tender offer and proxy solicitation rules.
If, in the future, Aviva exercises its right to implement the Acquisition by
way of a Takeover Offer, which is to be made into the US, such Takeover Offer
will be made in compliance with the applicable US laws and regulations,
including Section 14(e) and Regulation 14E under the US Exchange Act. Such a
Takeover Offer would be made in the US by Aviva and no one else.
In the event that the Acquisition is implemented by way of Takeover Offer, in
accordance with, and to the extent permitted by, the Takeover Code and normal
UK market practice, Goldman Sachs International and Citi, and their respective
affiliates, may continue to act as exempt principal traders or exempt market
makers in Direct Line Shares on the London Stock Exchange and will engage in
certain other purchasing activities consistent with their respective normal
and usual practice and applicable law, as permitted by Rule 14e-5(b)(9) under
the US Exchange Act. In addition, Aviva, its affiliates, their advisors and
the nominees or brokers (acting as agents) may make certain purchases of, or
arrangements to purchase, shares in Direct Line outside the Acquisition, such
as in open market purchases or privately negotiated purchases, during the
period in which the Acquisition remains open for acceptance. If such purchases
or arrangements to purchase were to be made, they would be made outside the US
and would comply with applicable law, including United Kingdom laws and the US
Exchange Act. Any such purchases by Aviva or its affiliates will not be made
at prices higher than the price of the Acquisition provided in this
Announcement unless the price of the Acquisition is increased accordingly. Any
information about such purchases or arrangements to purchase shall be
disclosed as required under United Kingdom laws and will be available to all
investors (including US investors) via the Regulatory Information Service and
shall be available on the London Stock Exchange website at
www.londonstockexchange.com. To the extent that such information is required
to be publicly disclosed in the United Kingdom in accordance with applicable
regulatory requirements, this information will, as applicable, also be
publicly disclosed in the United States.
It may be difficult for US holders of Direct Line Shares to enforce their
rights and any claim arising out of the US federal securities laws in
connection with the Acquisition, since Aviva and Direct Line are located in a
non-US jurisdiction, and some or all of their officers and directors may be
residents of a non-US jurisdiction. US holders of Direct Line Shares may not
be able to sue a non-US company or its officers or directors in a non-US court
for violations of the US securities laws. Further, it may be difficult to
compel a non-US company and its affiliates to subject themselves to a US
court's judgement.
The New Aviva Shares to be issued pursuant to the Acquisition have not been
registered under the US Securities Act 1933 or under any laws or with any
securities regulatory authority of any state, district or other jurisdiction,
of the US, and may only be offered or sold in the US in reliance on an
exemption from registration requirements of the US Securities Act including in
the case of the proposed scheme of arrangement, Section 3(a)(10) thereunder.
The financial information included in this Announcement, has been prepared in
accordance with accounting standards applicable in the United Kingdom and thus
may not be comparable to financial information of US companies or companies
whose financial statements are prepared in accordance with generally accepted
accounting principles in the US ("US GAAP"). US GAAP differs in certain
significant respects from accounting standards applicable in the United
Kingdom. None of the financial information in this Announcement has been
audited in accordance with auditing standards generally accepted in the United
States or the auditing standards of the Public Company Accounting Oversight
Board (United States).
Neither the Acquisition nor this Announcement have been approved or
disapproved by the US Securities and Exchange Commission, any state securities
commission in the United States or any other US regulatory authority, nor have
such authorities approved or disapproved or passed judgement upon the fairness
or the merits of the Acquisition, or determined if the information contained
in this Announcement is adequate, accurate or complete. Any representation to
the contrary is a criminal offence in the United States.
The receipt of New Aviva Shares and/or cash pursuant to the Acquisition by a
US holder as consideration for the transfer of its Direct Line Shares pursuant
to the Acquisition may be a taxable transaction for US federal income tax
purposes and under applicable US state and local, as well as foreign and
other, tax laws. Each US holder of Direct Line Shares is urged to consult
their independent legal, tax and financial advisers regarding the tax
consequences of the Acquisition applicable to them, including under applicable
US state and local, as well as overseas and other, tax laws.
American Depositary Shares and American Depositary Receipts
Aviva is aware that there is an "unsponsored" American Depositary Receipt
Program concerning Direct Line Shares. The Acquisition is not being made for
American Depositary Shares representing Direct Line Shares ("ADSs"), nor for
American Depositary Receipts evidencing such ADSs ("ADRs"). However, the
Acquisition is being made for the Direct Line Shares that are represented by
the ADSs. Holders of ADSs and ADRs are encouraged to consult with the
appropriate depositary regarding the tender of Direct Line Shares that are
represented by ADSs. Aviva is unaware of whether any respective depositary
will make arrangements to tender the underlying Direct Line Shares into the
Acquisition on behalf of holders of ADSs or ADRs.
Generally, holders of ADSs may be able to present their ADSs to the
appropriate depositary for cancellation and (upon compliance with the terms of
the deposit agreement relating to the "unsponsored" American Depositary
Receipt Program concerning Direct Line Shares, including payment of the
depositary's fees and any applicable transfer fees, taxes and governmental
charges) delivery of Direct Line Shares to them, in order to become
shareholders of the Direct Line. The Direct Line Shares delivered to holders
of ADSs upon such cancellation may then be tendered into the Acquisition.
Holders of ADSs should consult with the relevant depositary regarding their
ability to obtain the underlying Direct Line Shares and the applicable
procedures. Holders of ADSs should be aware, however, that in order to tender
in this manner, they may need to have an account in the United Kingdom into
which the Direct Line Shares can be delivered.
Forward-looking statements
This Announcement (including information incorporated by reference in this
Announcement), oral statements made regarding the Acquisition, and other
information published by Aviva or Direct Line may contain statements about
Aviva and Direct Line that are or may be deemed to be forward looking
statements. All statements other than statements of historical facts included
in this Announcement may be forward looking statements.
Without limitation, any statements preceded or followed by or that include the
words "targets", "plans", "believes", "expects", "aims", "intends", "will",
"may", "shall", "should", "anticipates", "estimates", "projects", "is subject
to", "budget", "scheduled", "forecast" or words or terms of similar substance
or the negative thereof, are forward looking statements. Forward looking
statements include statements relating to the following: (i) the ability to
complete the Acquisition in a timely manner, (ii) future capital expenditures,
expenses, revenues, earnings, synergies, economic performance, indebtedness,
financial condition, dividend policy, losses and future prospects; (iii)
business and management strategies and the expansion and growth of Aviva's or
Direct Line's operations and potential synergies resulting from the
Acquisition; and (iv) the effects of government regulation on the wider Aviva
Group's or the wider Direct Line Group's business.
Such forward looking statements are prospective in nature and are not based on
historical facts, but rather on current expectations and projections of the
management of Aviva and Direct Line about future events, and are therefore
subject to risks and uncertainties that could significantly affect expected
results and are based on certain key assumptions. Many factors could cause
actual results to differ materially from those projected or implied in any
forward looking statements, including: the impact of ongoing uncertain
conditions in the global financial markets and the national and international
political and economic situation generally, market developments and government
actions, changes in or inaccuracy of assumptions in pricing and reserving for
insurance business (particularly with regard to mortality and morbidity
trends, lapse rates and policy renewal rates), longevity and endowments, a
cyclical downturn of the insurance industry, the impact of natural and
man-made catastrophic events (including pandemics) on our business activities
and results of operation, the transitional, litigation and physical risks
associated with climate change, failure to understand and respond effectively
to the risks associated with sustainability, regulatory approval of changes to
the Aviva Group's internal model for calculation of regulatory capital under
the UK's version of Solvency II rules, the impact of recognising an impairment
of our goodwill or intangibles with indefinite lives, changes in valuation
methodologies, estimates and assumptions used in the valuation of investment
securities, the effect of legal proceedings and regulatory investigations, the
impact of operational risks, including inadequate or failed internal and
external processes, systems and human error or from external events and
malicious acts (including cyber attack and theft, loss or misuse of customer
data), increased competition, the loss of or damage to one or more key
customer relationships, changes to habits, the outcome of business or industry
restructuring, the outcome of any litigation, changes in global, political,
social, business and economic conditions, changes in the level of capital
investment, currency fluctuations, changes in interest and tax rates, changes
in market prices, changes in laws, regulations or regulatory policies,
developments in legal or public policy doctrines, technological developments,
the failure to retain key employees, or the timing and success of future offer
opportunities or major investment projects and the impact of any acquisitions
or similar transactions. Other unknown or unpredictable factors could cause
actual results to differ materially from those in the forward looking
statements.
Such forward looking statements should therefore be construed in light of such
factors. Neither Aviva nor Direct Line, nor any of their respective associates
or directors, officers or advisers, provides any representation, assurance or
guarantee that the occurrence of the events expressed or implied in any
forward looking statements in this Announcement will actually occur. Due to
such uncertainties and risks, readers are cautioned not to place undue
reliance on such forward looking statements, which speak only as of the date
hereof. All subsequent oral or written forward looking statements attributable
to any member of the Aviva Group or the Direct Line Group, or any of their
respective associates, directors, officers, employees or advisers, are
expressly qualified in their entirety by the cautionary statement above.
Aviva and Direct Line expressly disclaim any obligation to update any forward
looking or other statements contained herein, except as required by applicable
law or by the rules of any competent regulatory authority, whether as a result
of new information, future events or otherwise.
No profit forecast or estimates
Other than the Aviva 2026 Profit Forecast, no statement in this Announcement
is intended as, or is to be construed as, a profit forecast or profit estimate
for any period and no statement in this Announcement should be interpreted to
mean that earnings or earnings per Direct Line Share or Aviva Share for the
current or future financial years would necessarily match or exceed the
historical published earnings or earnings per share for Direct Line Shares or
Aviva Shares.
Quantified financial benefits
Statements of estimated cost savings and synergies relate to future actions
and circumstances which, by their nature, involve risks, uncertainties and
contingencies. As a result, the cost savings and synergies referred to may not
be achieved, may be achieved later or sooner than estimated, or those achieved
could be materially different from those estimated. Neither the quantified
financial benefit statements nor any other statement in this Announcement
should be construed as a profit forecast or interpreted to mean that the
Combined Group's earnings in the first full year following implementation of
the Acquisition, or in any subsequent period, would necessarily match or be
greater than or be less than those of Aviva or Direct Line for the relevant
preceding financial period or any other period.
Disclosure requirements of the Takeover Code
Under Rule 8.3(a) of the Takeover Code, any person who is interested in 1 per
cent. or more of any class of relevant securities of an offeree company or of
any securities exchange offeror (being any offeror other than an offeror in
respect of which it has been announced that its offer is, or is likely to be,
solely in cash) must make an Opening Position Disclosure following the
commencement of the Offer Period and, if later, following the announcement in
which any securities exchange offeror is first identified. An Opening Position
Disclosure must contain details of the person's interests and short positions
in, and rights to subscribe for, any relevant securities of each of (i) the
offeree company and (ii) any securities exchange offeror(s). An Opening
Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no
later than 3.30 pm (London time) on the 10th business day following the
commencement of the Offer Period and, if appropriate, by no later than 3.30 pm
(London time) on the 10th business day following the announcement in which any
securities exchange offeror is first identified. Relevant persons who deal in
the relevant securities of the offeree company or of a securities exchange
offeror prior to the deadline for making an Opening Position Disclosure must
instead make a Dealing Disclosure.
Under Rule 8.3(b) of the Takeover Code, any person who is, or becomes,
interested in 1 per cent. or more of any class of relevant securities of the
offeree company or of any securities exchange offeror must make a Dealing
Disclosure if the person deals in any relevant securities of the offeree
company or of any securities exchange offeror. A Dealing Disclosure must
contain details of the dealing concerned and of the person's interests and
short positions in, and rights to subscribe for, any relevant securities of
each of (i) the offeree company and (ii) any securities exchange offeror(s),
save to the extent that these details have previously been disclosed under
Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be
made by no later than 3.30 pm (London time) on the business day following the
date of the relevant dealing.
If two or more persons act together pursuant to an agreement or understanding,
whether formal or informal, to acquire or control an interest in relevant
securities of an offeree company or a securities exchange offeror, they will
be deemed to be a single person for the purpose of Rule 8.3.
Opening Position Disclosures must also be made by the offeree company and by
any offeror and Dealing Disclosures must also be made by the offeree company,
by any offeror and by any persons acting in concert with any of them (see
Rules 8.1, 8.2 and 8.4).
Details of the offeree and offeror companies in respect of whose relevant
securities Opening Position Disclosures and Dealing Disclosures must be made
can be found in the Disclosure Table on the Panel's website at
www.thetakeoverpanel.org.uk, including details of the number of relevant
securities in issue, when the Offer Period commenced and when any offeror was
first identified. You should contact the Panel's Market Surveillance Unit on
+44 (0)20 7638 0129 if you are in any doubt as to whether you are required to
make an Opening Position Disclosure or a Dealing Disclosure.
Publication on website
A copy of this Announcement and the documents required to be published
pursuant to Rule 26 of the Takeover Code will be available, free of charge,
subject to certain restrictions relating to persons resident in Restricted
Jurisdictions, on Aviva's website at https://www.aviva.com/investors/ and
Direct Line's website at https://www.directlinegroup.co.uk/en/investors by no
later than 12.00 noon (London Time) on the Business Day following the
publication of this Announcement.
For the avoidance of doubt, the contents of these websites and any websites
accessible from hyperlinks on these websites are not incorporated into and do
not form part of this Announcement.
Information relating to Direct Line Shareholders
Please be aware that addresses, electronic addresses and certain other
information provided by Direct Line Shareholders, persons with information
rights and other relevant persons for the receipt of communications from
Direct Line may be provided to Aviva during the Offer Period as required under
Section 4 of Appendix 4 of the Takeover Code.
Right to receive documents in hard copy form
In accordance with Rule 30.3 of the Takeover Code, Direct Line Shareholders,
participants in the Direct Line Share Plans and persons with information
rights may request a hard copy of this Announcement, free of charge, by
contacting Direct Line's registrars, Computershare Investor Services PLC,
during business hours on +44 (0)370 873 5880, or by submitting a request in
writing to The Pavilions, Bridgwater Road, Bristol BS99 6ZY. If calling from
outside of the UK, please ensure the country code is used. For persons who
receive a copy of this Announcement in electronic form or via a website
notification, a hard copy of this Announcement will not be sent unless so
requested. Such persons may also request that all future documents,
announcements and information in relation to the Acquisition are sent to them
in hard copy form. Please note that Computershare Investor Services PLC cannot
provide any financial, legal or tax advice and calls may be recorded and
monitored for security and training purposes.
Rounding
Certain figures included in this Announcement have been subjected to rounding
adjustments. Accordingly, figures shown for the same category presented in
different tables may vary slightly and figures shown as totals in certain
tables may not be an arithmetic aggregation of the figures that precede them.
General
If you are in any doubt about the contents of this Announcement or the action
you should take, you are recommended to seek your own independent financial
advice immediately from your stockbroker, bank manager, solicitor or
independent financial adviser duly authorised under FSMA if you are resident
in the United Kingdom or, if not, from another appropriately authorised
independent financial adviser.
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR
INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE
A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION
This announcement contains inside information
FOR IMMEDIATE RELEASE
23 December 2024
RECOMMENDED CASH AND SHARE OFFER
FOR Direct line insurance group plc ("Direct Line")
BY AVIVA PLC ("AVIVA")
to be effected by means of a Scheme of Arrangement
under Part 26 of the Companies Act 2006
1. Introduction
The boards of Aviva and Direct Line are pleased to announce they have reached
agreement on the terms of a recommended cash and share offer for the entire
issued and to be issued ordinary share capital of Direct Line (the
"Acquisition"). It is intended that the Acquisition will be implemented by way
of a Court-sanctioned scheme of arrangement under Part 26 of the Companies
Act.
2. The Acquisition
Under the terms of the Acquisition, which will be subject to the Conditions
and further terms set out below and in Appendix 1 to this Announcement, and to
be set out in the Scheme Document, each Direct Line Shareholder will be
entitled to receive:
For each Direct Line Share held: 0.2867 New Aviva Shares;
129.7 pence in cash; and
up to 5 pence (in aggregate) in the form of dividend payments to be paid
(subject to the approval of the Direct Line Board) prior to Completion
(together, the "Offer Consideration")
· Based on the Closing Price of Aviva Shares of 489.3 pence
on 27 November 2024 (being the last closing share price before the
commencement of the Offer Period), this values each Direct Line Share at 275
pence per Direct Line Share and values the entire issued and to be issued
share capital of Direct Line at approximately £3.7 billion on a fully diluted
basis.
· This represents a premium of approximately:
° 73.3 per cent. to the Closing Price of 158.7 pence per Direct Line
Share on 27 November 2024; and
° 49.7 per cent. to the six month volume weighted average price of 183.7
pence per Direct Line Share to 27 November 2024.
· Upon Completion, it is expected that Aviva Shareholders
will own approximately 87.5 per cent. and Direct Line Shareholders will own
approximately 12.5 per cent. of the issued and to be issued share capital of
Aviva.
Aviva and Direct Line have agreed certain arrangements with regard to the
further payment of dividends and other distributions and returns of capital
prior to the Effective Date. Further details on dividend arrangements are set
out in paragraph 11 (Dividends) of this Announcement.
It is expected that the Scheme Document (including details of the Court
Meeting and the General Meeting), and the Forms of Proxy accompanying the
Scheme Document, will be published beginning-mid February 2025. The Court
Meeting and General Meeting are expected to be held in March 2025 and the
Scheme is expected to become Effective in mid-2025, subject to the
satisfaction or, where permitted, waiver of the Conditions set out in the
Appendix 1 to this Announcement.
An expected timetable of principal events relating to the Acquisition and
further information on the actions to be taken by the Direct Line Shareholders
will be provided in the Scheme Document.
3. Background to and reasons for the Acquisition
Summary
In 2020, Aviva announced its strategic priorities, including plans to simplify
its operations and become a leading Insurance, Wealth, and Retirement
business. Since then, Aviva has refocused its portfolio on its core markets in
the UK, Ireland and Canada, aiming to deliver profitable growth for
shareholders whilst maintaining the financial strength to reinvest in the
business, selectively pursue M&A and deliver additional shareholder
returns.
As part of this strategy, Aviva has executed eight international disposals,
rebuilt its financial strength, and enhanced its core businesses with bolt-on
M&A, providing greater scale and capabilities. The proceeds from the
disposals, combined with strong operational execution, have enabled Aviva to
return £9 billion to shareholders between 2020 and 2023, while positioning
the Aviva Group as the UK's leading diversified insurer across Insurance,
Wealth and Retirement.
The Acquisition builds on Aviva's strong momentum and aligns with its clear
strategy of investing for the future and supplementing organic growth with
M&A.
The Aviva Board believes that the Acquisition will result in the following
benefits:
Creating a leading UK Personal Lines franchise
Aviva's strong Personal Lines management team continues to deliver profitable
organic growth, particularly within the Retail segment, including through its
innovative Aviva Zero proposition. Aviva's Personal Lines business now serves
6.4 million customers in the UK and, in its Q3 2024 trading update, Aviva
announced the delivery of a year-to-date UK Personal lines premium growth of
26 per cent., driven by 43 per cent. growth in Retail and supported by 13 per
cent. growth in Motor policy count.
The UK Personal Lines market benefits from attractive market fundamentals,
generating at least £26 billion of GWP in 2023 and recording a growth rate of
11 per cent. from 2020 to 2023. The UK personal Iines market is fragmented and
faces rising costs, a distribution shift towards PCW, regulatory pressures and
increasing focus on brand recognition. The Combined Group will be well-placed
to succeed in this market through enhanced scale with 18.1 million policies in
force, utilising Direct Line's well-recognised and leading customer-centric
brands, broadening Aviva's existing product offering through the addition of
new attractive lines such as Pet, Rescue and SME Direct, and offering Direct
Line's value-added services such as Green Flag to Aviva customers. The
Acquisition will also accelerate Aviva's pivot towards more profitable Retail
distribution, which is expected to rise from 51 per cent. in 2023 to over ~70
per cent. immediately post Completion. The Combined Group would have enhanced
scale, with pro-forma Personal Lines GWP for FY2023 of £5.4 billion and would
deliver an improved and compelling offering to a wider customer base.
Accelerating Aviva's capital-light strategy
Aviva is majority capital-light with ~55 per cent. of operating profit
generated from its Insurance, Wealth and Aviva Investors businesses in 2023.
Aviva has continued to make important and deliberate investments to accelerate
growth in these capital-light businesses to achieve its existing ambition of
generating 70 per cent. of operating profit from these businesses by 2026. The
Acquisition will further accelerate Aviva's capital-light strategy, surpassing
its 70 per cent. capital-light ambition by 2026.
Delivering better outcomes for customers
Aviva believes it has a strong cultural alignment with Direct Line, as both
organisations share a deep commitment to customers. The Combined Group will be
better positioned to serve the needs of its expanded customer base. This
larger, more diversified, and financially robust organisation would offer
customers competitive pricing and faster claims payment; supported by stronger
supply chains, a complementary range of Aviva and Direct Line products and
services, advanced digital capabilities and greater investment in technology.
Creating significant value for Aviva and Direct Line Shareholders
Aviva plans to achieve annual run-rate pre-tax cost synergies of at least
£125 million by the end of the third full year post-Completion, which would
drive compelling value creation for all shareholders in the Combined Group.
These synergies would be incremental to Direct Line's previously announced
cost savings programme of £100 million of run-rate cost by the end of 2025.
The cost synergies from the Acquisition are expected to be achieved through a
reduction in overlapping roles across the combined insurance operations,
economies of scale and increased efficiency, the integration of duplicative
back and middle office IT platforms, as well as rationalisation of supporting
teams and the reduction of overlapping roles in a number of shared service,
head office and senior management functions. In order to realise these cost
synergy benefits, one-off integration costs of approximately £250 million are
expected to be incurred, of which approximately 75 per cent. are expected
within the first two years post-Completion.
In addition, the Aviva Board believes that significant further value can be
created through the realisation of incremental capital, reinsurance, claims
and revenue synergies. Further detail on the quantified synergies and the cost
to achieve them is set out in paragraph 5 below.
The Acquisition is expected to result in EPS accretion of ~10 per cent. once
pre-tax cost synergies of £125 million are fully realised, with underlying
EPS accretion expected from the first full year post-Completion.
The Aviva Board believes Aviva has the experience and expertise to achieve a
successful integration of Direct Line and to deliver on the expected
synergies. Aviva's management team has undertaken a significant number of
portfolio changes in recent years, including the disposal of eight businesses,
the integration of acquisitions including AIG UK, Probitas, Optiom and
Succession Wealth, and the delivery of a £750 million cost reduction
programme one year ahead of schedule.
In addition, Aviva's UK Personal Lines management team has a strong track
record, having navigated COVID and a period of high inflation whilst
delivering profitable growth. This team has shown innovation through the
building and scaling of Aviva Zero and the development of value driven
pricing, data and artificial intelligence capabilities alongside effective
cost management.
Other than the Aviva 2026 Profit Forecast, no statement in this Announcement
is intended as, or is to be construed as, a profit forecast or profit estimate
for any period and no statement in this Announcement should be interpreted to
mean that earnings or earnings per Direct Line Share or Aviva Share for the
current or future financial years would necessarily match or exceed the
historical published earnings or earnings per share for Direct Line Shares or
Aviva Shares.
Enhancing shareholder distributions
Aviva has a strong track record of delivering superior returns to shareholders
with growing dividends and regular capital returns. Aviva's shareholders have
received a TSR of ~145 per cent. since Amanda Blanc's appointment as CEO and
over ~21 per cent. in the year to date. Aviva remains committed to delivering
growing dividends and a sustainable return of capital to shareholders that
reflects the Aviva Group's predictable and sustainable cash generation.
The Acquisition will enable the Aviva Group to raise dividends per Aviva Share
and increase future buybacks, supported by increased cash and capital
generation as well as material capital synergies to be realised over time. The
Aviva Board currently expects to declare a mid-single digit percentage uplift
in the dividend per Aviva Share following Completion. This uplift will apply
to the enlarged share capital of Aviva post-Completion. The Aviva Board
intends to maintain the current guidance of mid-single digit growth in the
cash cost of the dividend from this rebased level.
Given the internal cash resources used towards funding the Acquisition, the
Aviva Board does not expect to launch a share buyback in 2025. Aviva expects
the transaction to result in a Group Solvency II coverage ratio towards the
upper end of its 160-180 per cent. working range, before capital synergies are
recognised over time. Aviva intends to maintain its guidance of regular and
sustainable share buybacks from 2026 onwards, and its initial expectation is
that the size of future buybacks will increase to reflect the increase in
Aviva's share capital post-Completion, subject to PRA approval.
Aviva's Solvency II debt leverage ratio is expected to increase slightly to
~31-32 per cent. at Completion and is expected to return to below 30 per cent.
over time. The Acquisition is not expected to impact Aviva Group's credit
ratings. Aviva expects centre liquidity to remain above £1 billion
post-Completion.
4. Background to and reasons for the recommendation
Direct Line is one of the UK's leading general insurance companies, with a
leading personal lines customer franchise, scaled market positions and some of
the most recognisable brands in the market across a complementary and diverse
portfolio. Direct Line and Churchill are two of the most iconic brands in the
UK motor and home insurance markets. Direct Line owns a leading in-house
garage network and Green Flag, which is the UK's third largest vehicle rescue
brand in the UK. In September 2023 Direct Line welcomed over 700,000 customers
under a partnership with Motability, further demonstrating a capability to
offer a wide service proposition. Direct Line operates in the Commercial
Direct segment with a focused proposition for SMEs and Landlords delivered
under both the Direct Line and Churchill brands direct to customers and via
PCW. This portfolio has enabled Direct Line to develop a strong customer
franchise encompassing over 9 million customers, including in the UK Personal
Lines segment.
Direct Line recently appointed a new, highly experienced senior leadership
team to execute an ambitious turnaround strategy aimed at unlocking value by
achieving attractive and sustainable growth in profitability, capital
generation and shareholder returns after a period of disappointing
performance. This strategy builds on Direct Line's strong foundations.
Following Adam Winslow's appointment as Direct Line's CEO and the completion
of a comprehensive strategic review across the Direct Line Group, Direct Line
outlined its strategy at its Capital Markets Day in July 2024. This strategy
focused on accelerating a turnaround to target leading positions in Direct
Line's core markets of Motor, Home, Commercial Direct and Rescue, and building
a strong culture of performance. Direct Line set clear financial targets
including a 7-10 per cent. Compound Annual Growth Rate ("CAGR") for Non-Motor
GWP between 2023 and 2026, the delivery of at least £100 million gross
run-rate cost savings by the end of 2025, a 13 per cent. Net Insurance Margin
in 2026 and the paying of around 60 per cent. of full year operating earnings
as a regular dividend. In the medium term, Direct Line has been targeting a
solvency capital ratio of around 180 per cent.; however, in the short term, as
the turnaround plan is executed, Direct Line has been expecting to maintain a
solvency capital ratio above that level.
As recently evidenced in Direct Line's H1 2024 and Q3 2024 trading updates,
Direct Line has demonstrated early progress in executing this turnaround
strategy at pace. This includes a return to group profitability in H1 2024, a
well-developed product build for the launch of the Direct Line brand on PCW
for Motor, further progress on re-platforming the Home segment and the
implementation of a series of initiatives supporting the expected delivery of
around £50 million of gross cost savings in 2025. In doing so, Direct Line
has demonstrated material progress towards the Direct Line Group's target of
delivering at least £100 million gross run-rate cost savings by the end of
2025.
Despite this early strategic progress, the Direct Line Directors do not
believe that Direct Line's share price and valuation was appropriately
reflecting the potential for the business, with Direct Line's share price
trading close to a 12-month low prior to Aviva's initial approach regarding a
possible offer for Direct Line in November 2024.
Against this backdrop, whilst the Direct Line Directors have considerable
conviction in the delivery of Direct Line's turnaround strategy under its new
senior leadership team, it has concluded, alongside its advisers and following
extensive consultation with Direct Line Shareholders during the Offer Period,
that Aviva's offer to acquire the entire issued and to be issued share capital
of Direct Line delivers shareholders an attractive valuation of Direct Line
today when taking into account the risks inherent in a multi-year turnaround
and the prevailing market backdrop.
In considering the terms of the offer, the Direct Line Directors have taken
into account a number of factors, including but not limited to, the
Acquisition representing:
• a significant premium of 73.3 per cent. to the
Closing Price of 158.7 pence per Direct Line Share on 27 November 2024 (being
the last closing share price before the commencement of the Offer Period);
• a premium of 49.7 per cent. to the six-month
volume weighted average price of 183.7 pence per Direct Line Share to 27
November 2024; and
• the consideration mix consisting of a portion
of fixed and certain cash consideration with the remaining consideration in
Aviva Shares that together reflects the medium-term prospects of the Direct
Line business. In particular, the Aviva share consideration provides Direct
Line Shareholders with approximately 12.5 per cent. of the Combined Group and
a meaningful share of the significant synergies and substantial additional
value upside potential, which are expected to accrue to these shareholders in
excess of receiving an attractive headline premium on Completion.
In addition to the financial terms, the Direct Line Directors have also taken
into account Aviva's intentions concerning Direct Line's business, management
team, employees and other stakeholders of Direct Line (as detailed in
paragraph 10 of this Announcement), and have concluded that the Combined Group
is well-placed to deliver for all its stakeholders. In particular, the Direct
Line Directors have considered Aviva's view that the Combined Group would be
well-placed to compete in the fragmented, highly competitive and dynamic
general insurance market, including in offering competitive premiums across
the UK Personal Lines segment and commercial insurance.
Accordingly, following careful consideration of the above factors, the Direct
Line Directors intend to unanimously recommend that Direct Line Shareholders
vote in favour of the Scheme at the Court Meeting and that Direct Line
Shareholders vote in favour of the resolution(s) to be proposed at the General
Meeting.
5. Potential synergies and integration planning
Aviva expects that the Acquisition will generate significant synergies,
driving material value creation for the shareholders of both Aviva and Direct
Line. The Aviva Board are confident that the Aviva management team can deliver
the anticipated synergies, given its collective experience and expertise in
the UK General Insurance market.
The Aviva Directors, having reviewed and analysed the potential synergies of
the Acquisition, based on their knowledge of Direct Line's business and the UK
General Insurance market, and taking into account the factors they can
influence, believe that the Acquisition can generate annual run-rate pre-tax
cost synergies of at least £125 million by the end of the third year
post-Completion, with the synergies expected to be delivered broadly equally
in each of the three years post-Completion. These anticipated recurring
synergies would be incremental to Direct Line's previously announced cost
savings target of £100 million per annum.
The potential sources of quantified synergies are currently envisaged to
include:
· approximately 50 per cent. derived from the reduction of
overlapping roles in a number of shared service, head office and senior
management functions, as well as rationalisation of related external costs;
· approximately 30 per cent. derived from the reduction of
overlapping roles across the combined insurance operations and increased
efficiency resulting from the Combined Group's greater scale; and
· approximately 20 per cent. derived from the integration of
duplicative back and middle-office IT platforms, as well as rationalisation of
supporting teams.
The integration of the businesses will involve combining the Direct Line
business and group functions into the Aviva UK Personal Lines business. It is
intended that Direct Line's core brands will be maintained, including Direct
Line, Churchill and Green Flag.
It is envisaged that the realisation of the potential quantified synergies
will result in one-off integration costs of approximately £250 million (in
aggregate) and approximately 75 per cent. of these are expected to be incurred
in years 1 and 2 post-Completion. Aside from these one-off integration costs,
no material dis-synergies are expected in connection with the Acquisition. The
identified synergies will accrue as a direct result of the Acquisition and
would not be achieved on a standalone basis.
In addition to these potential quantified synergies, the Aviva Directors
believe that significant further value can be created through realisation of
potential incremental synergies, including:
· material capital synergies arising from Aviva's complementary
risk profile and efficient capital model, enabled by a combination of tools,
including renewal of existing business into Aviva Insurance Limited, internal
reinsurance and successful completion of a Part VII Transfer into Aviva
Insurance Limited;
· alignment of externally purchased reinsurance programmes,
potentially benefitting from economies of scale and Aviva's larger capital
base;
· application of Aviva's indemnity management framework, across
pricing, fraud prevention etc., as well as potential scale benefits and
efficiencies from the Combined Group's enlarged repair network; and
· potential revenue opportunities from an enhanced product offering
and extended suite of value-added services following the Acquisition.
These statements of estimated cost savings and identified synergies relate to
future actions and circumstances which, by their nature, involve risks,
uncertainties and contingencies. As a result, the estimated cost savings and
identified synergies referred to may not be achieved, may be achieved later or
sooner than estimated, or those achieved could be materially different from
those estimated. For the purposes of Rule 28 of the Takeover Code, the
statements of estimated cost savings and synergies contained in this
Announcement are solely the responsibility of Aviva and the Aviva Directors.
These statements are not intended as a profit forecast and should not be
interpreted as such.
Appendix 5 includes a copy of these statements of estimated quantified cost
savings and identified synergies arising out of the Acquisition and provides
underlying information and bases of belief. References in this Announcement to
the Quantified Financial Benefits Statement should be read in conjunction with
Appendix 5. Appendix 5 also includes reports from Aviva's reporting
accountants, PwC, and its joint financial advisers, Citi and Goldman Sachs
International, in connection with the anticipated quantified financial
benefits statement, as required pursuant to Rule 28.1(a) of the Takeover Code,
and provides underlying information and bases for the reporting accountants'
and financial advisers' respective reports. Each of PwC, Citi, and Goldman
Sachs International has given and not withdrawn its consent to the publication
of its report in this Announcement in the form and context in which it is
included as required pursuant to Rule 23.2 of the Takeover Code.
It is not anticipated that the Acquisition will require any immediate changes
to the capital structure of the Aviva Group, the Direct Line Group or the
Combined Group as a whole. Aviva and Direct Line intend to simplify and align
their capital structures over time as part of broader integration planning.
6. Recommendation
The Direct Line Directors, who have been so advised by Morgan Stanley, Robey
Warshaw LLP and RBC Capital Markets as to the financial terms of the
Acquisition, consider the terms of the Acquisition to be fair and reasonable.
In providing their advice to the Direct Line Directors, Morgan Stanley, Robey
Warshaw LLP and RBC Capital Markets have taken into account the commercial
assessments of the Direct Line Directors. Morgan Stanley and Robey Warshaw LLP
are providing independent financial advice to the Direct Line Directors for
the purposes of Rule 3 of the Takeover Code.
Accordingly, the Direct Line Directors intend to recommend unanimously that
Direct Line Shareholders vote (or procure votes) in favour of the Scheme at
the Court Meeting and to vote (or procure votes) in favour of the Direct Line
Resolution(s) at the General Meeting (or, in the event the Acquisition is
implemented by way of a Takeover Offer, to accept, or procure acceptance of,
such Takeover Offer) as the Direct Line Directors who (or whose immediate
family) beneficially hold Direct Line Shares have irrevocably undertaken to do
(or procure to be done) in respect of their entire beneficial holdings of
556,447 Direct Line Shares in total, representing in aggregate approximately
0.04 per cent. of Direct Line's ordinary share capital in issue as at the
Latest Practicable Date. These irrevocable undertakings remain binding in the
event a higher competing offer is made for Direct Line by a third party.
Further details of these irrevocable undertakings, including the circumstances
in which they may lapse, are set out in Appendix 3 to this Announcement.
7. Aviva Board Statement
The Acquisition constitutes a "significant transaction" for Aviva for the
purposes of the Listing Rules and this Announcement constitutes a notification
pursuant to Chapter 7 of the Listing Rules.
The Aviva Directors believe that the Acquisition is in the best interests of
Aviva Shareholders as a whole.
8. Information relating to Aviva
Aviva is one of the UK's leading diversified insurers across Insurance, Wealth
and Retirement, with 19.2 million customers in the UK, Ireland and Canada.
Aviva's purpose is to protect the things that matter most to its customers:
their homes and belongings, their health and wealth, their future and their
families. Aviva has a clear strategy to achieve its purpose based on
accelerating its growth in capital light business, providing a digitally-led
customer experience, efficiency and sustainability. As at 30 June 2024, the
total group assets under management of the Aviva Group were £398 billion,
the estimated Solvency II shareholder capital surplus was £8.2 billion and
the Aviva Group's solvency capital ratio (shareholder view) was 205 per cent.
9. Information relating to Direct Line
Direct Line is one of the UK's leading insurance companies. The Direct Line
Group's vision is to create a world where insurance is personal, inclusive and
a force for good. Through its well-known brands which include Direct Line,
Churchill, Privilege, Darwin, Direct Line for Business and Green Flag, Direct
Line helps people to carry on with their lives, giving them peace of mind now
and in the future. Its brands offer a wide range of general insurance products
across Motor, Home, Commercial Direct Travel, Pet and Rescue, both direct to
customers and through PCW and it underwrites insurance products distributed by
its third-party partners. The Direct Line Group believes that by embracing
sustainable practices it creates a better corporate culture able to provide
more reliable products and bring long-term rewards for its customers, people
and shareholders. For the year ended 31 December 2023, the Direct Line Group
generated GWP and associated fees of £3.1 billion. As at 30 June 2024, the
estimated Solvency II shareholder capital surplus was £1.1 billion and the
Direct Line Group's solvency capital ratio (shareholder view) was 198 per
cent.
10. Strategic plans, directors, management, employees,
pensions, research and development and locations
Aviva's strategic plans for Direct Line
Aviva believes that the acquisition of Direct Line will build on its existing
strengths within the Personal Lines segment and further accelerate the Aviva
Group's shift towards its capital-light business lines. The Acquisition is
expected to broaden Aviva's product range by bringing in new products such as
Pet and Rescue and enhance Aviva's existing Direct SME capability. Aviva
believes it has a strong cultural alignment with Direct Line, as both
organisations share a deep commitment to customer service and desire to
deliver good outcomes for their customers. The complementary fit of these two
businesses would create a Combined Group that Aviva believes is optimally
positioned to serve the needs of its expanded customer base. This will remain
a key priority for Aviva post-Acquisition.
Aviva intends to fully integrate Direct Line into its existing operations over
the three years following Completion, with the integration process commencing
shortly after Completion. As part of the integration process, Aviva intends to
effect a Part VII Transfer from UK Insurance Limited, Direct Line's primary
operating entity, into Aviva Insurance Limited and, until then, business is
expected to renew into Aviva Insurance Limited where possible. Prior to
completion of a Part VII Transfer and as part of its comprehensive integration
planning, Aviva will consider other options to optimise the capital efficiency
of the Direct Line business, including via internal and external reinsurance,
subject to PRA approval.
Aviva intends to maintain Direct Line's core brands, including Direct Line,
Churchill and Green Flag, and intends to continue with Direct Line's existing
plans to launch the Direct Line brand on PCW. Aviva will conduct a review of
other brands prior to Completion. Subject to further engagement with Direct
Line's existing distribution partners, Aviva intends to maintain these
partnerships, with the exception of those from which Direct Line has already
publicly indicated its intent to exit, being the so-called "Run-off
Partnerships" and Original Equipment Manufacture (OEM) Motor partnerships.
With respect to technology, Aviva intends to fully integrate any duplicative
back and middle office IT platforms of Aviva and Direct Line over time. For
core platforms (including policy administration and claims systems) and
supporting technology, Aviva intends to conduct an internal review as soon as
practicable following Completion, to determine the end-state systems across
each of the Combined Group's products and distribution channels on a
"best-of-both" basis. The review will include an assessment of a range of
factors including architecture, security, resilience, digital capability, and
risk analysis. No definitive decisions have been made as to which end-state
systems will be retained. At all times, the Combined Group will continue to
aim to provide an optimal experience for its customers.
Employees and management
Aviva recognises that the talented employee base of Direct Line will be
critical to the success of the Acquisition. Aviva believes that the
Acquisition will bring together two businesses with strongly aligned cultural
values, with Direct Line employees benefitting from being part of a larger,
more diversified Combined Group and one that offers a compelling and
competitive value proposition to its employees.
The synergy analysis carried out by Aviva to date has confirmed the potential
to generate expected cost synergies for the Combined Group. Aviva intends to
work with Direct Line prior to Completion to undertake a detailed evaluation
of the Direct Line Group and develop its plans to integrate their respective
businesses. The Aviva Board anticipates that, in order to achieve the expected
benefits of the Acquisition there will be a reduction in the workforce as a
result of overlapping functions, including operational, shared service,
group/head office and senior management functions; in aggregate this would
constitute between approximately 5 per cent. and 7 per cent. of the Combined
Group's employee base. Aviva expects these reductions would be mitigated by:
· phasing over an anticipated three years post-Completion;
· natural attrition, noting that ordinary course turnover at Aviva
comprised approximately 1,300 employees across the UK in 2024 (up to end of
November 2024); and
· seeking to redeploy employees where possible, noting:
o approximately 800 UK-based vacancies currently across the Aviva Group; and
o the potential creation of new positions as Aviva Group continues to
deliver on its strong organic growth ambitions.
Any workforce changes would be subject to comprehensive planning and any
required information and consultation with any affected employees and/or their
representatives in accordance with applicable law. Save as set out above,
Aviva does not intend to make material headcount reductions from the Combined
Group. Following the Scheme becoming Effective, the existing contractual and
statutory employment rights, including in relation to pensions and redundancy
policies, of all Direct Line Group employees will be fully safeguarded in
accordance with applicable law. Aviva does not intend to make any material
changes to the conditions of employment of Direct Line Group employees, taken
as a whole.
It is intended that, with effect from the Effective Date, certain of the
non-executive directors of Direct Line shall resign from their office but some
are expected to remain in place to ensure continuity and to meet regulatory
requirements. Aviva has not entered into, nor had any discussions regarding,
any form of incentive arrangements with any member of Direct Line's management
and does not intend to enter into any such discussions prior to the Effective
Date.
Pensions
Direct Line has a legacy UK pension scheme which is closed to members and was
closed to future accrual in 2003 (the "Pension Scheme"). The Pension Scheme
has defined benefit and defined contribution sections. The Pension Scheme is
managed by a trustee, who acts independently of Direct Line and is responsible
for investment policy with regard to the assets of the Pension Scheme.
In October 2022, the trustee entered into a £53.9 million bulk annuity
insurance buy-in transaction whereby most of the assets held in respect of
defined benefit liabilities in the Pension Scheme were replaced with an
insurance policy asset. The buy-in policy is designed to provide cash flows
that exactly match the value and timing of the defined benefits payable to the
Pension Scheme's members.
The trustee has indicated that it expects to be in a position to transfer
responsibility for paying scheme benefits to its buy-in insurer during 2025.
There was no deficit revealed by the last completed formal actuarial valuation
of the Pension Scheme as at 1 October 2020. No employer contributions are
currently being paid to the Pension Scheme. Aviva's intention is for the
Pension Scheme to remain closed to new members and further accrual as it
completes its transition process. Aviva intends to work constructively with
the trustee of the Pension Scheme going forward, and if a deficit arises in
the Pension Scheme before it is wound-up Aviva will consider any trustee
request for further employer contributions.
Headquarters, locations, fixed assets and research and development
As part of its integration planning process, Aviva will look to simplify the
Combined Group's office footprint. Where there is geographic overlap, Aviva
intends, where feasible, to consolidate the existing sites and in these cases,
the aim would be to relocate staff to nearby locations of the Combined Group
as required, subject to any required information and consultation with
affected employees and/or their representatives in accordance with applicable
law. Aviva anticipates maintaining Direct Line's head office in central London
for at least the twelve months from Completion. Aviva expects to review the
Combined Group's repair centre sites to consider consolidations of a small
number as part of its overall integration planning following Completion, but
no decisions have been made at this stage. Save as set out above, Aviva does
not have any current intention to redeploy any of the fixed assets of the
Direct Line Group.
Direct Line does not have a dedicated research and development function,
although it has a technology centre in Birmingham which carries out car
technology development, testing and training. Aviva has no intentions to
change these functions.
Trading Facilities
Direct Line Shares are currently admitted to trading on the London Stock
Exchange main market. As set out in paragraph 18, an application will be made
for the cancellation of trading of Direct Line Shares on the London Stock
Exchange with effect from or shortly following the Effective Date.
None of the statements in this paragraph 10 are "post-offer undertakings" for
the purposes of Rule 19.5 of the Takeover Code.
11. Dividends
Pursuant to the Offer Consideration, Direct Line Shareholders are entitled to
receive up to 5.0 pence of dividends per Direct Line Share prior to the
Effective Date (subject to Direct Line Board approval).
Aviva and Direct Line have further agreed that, until the Effective Date,
Aviva will declare its dividends in accordance with the Aviva Dividend Policy.
Aviva and Direct Line expect the Scheme to become Effective in mid-2025. The
Long Stop Date allows for the possibility of a later Effective Date and the
parties have agreed certain further arrangements relating to dividends to
cater for a situation where the Acquisition completes later than expected:
· If the Effective Date occurs after the record date for Aviva's
FY25 interim dividend, Direct Line will be entitled to declare and pay
additional dividends prior to the Effective Date of up to 2.0 pence per Direct
Line Share in aggregate (subject to Direct Line Board approval).
· In addition, if the Effective Date occurs after the record date
for Aviva's FY25 final dividend, Direct Line will be entitled to declare and
pay additional dividends prior to the Effective Date in accordance with the
Direct Line Dividend Policy of up to 10.6 pence per Direct Line Share in
aggregate (subject to Direct Line Board approval).
· In addition, if the Effective Date occurs after the record date
for Aviva's FY26 interim dividend, Direct Line will be entitled to declare and
pay additional dividends prior to the Effective Date in accordance with the
Direct Line Dividend Policy of up to 4.2 pence per Direct Line Share in
aggregate (subject to Direct Line Board approval).
If on or after the date of this Announcement and prior to the Effective Date:
· Any dividend is declared by Direct Line which exceeds the
limitations agreed with Aviva, Aviva shall be entitled to reduce the cash
element of the Offer Consideration accordingly.
· Any dividend is declared by Aviva which exceeds the limitations
agreed with Direct Line, Direct Line shall be entitled to declare an
equalising dividend to Direct Line Shareholders.
Further detail on these arrangements can be found in Clause 3 of the
Co-operation Agreement and will be set out in the Scheme Document.
12. Current Trading
Aviva
Since Aviva's Q3 trading update announcement on 14 November 2024, Aviva's
financial performance has been in line with management's expectations. Please
see further details on the Aviva 2026 Profit Forecast in Appendix 6.
Direct Line
Since Direct Line's Q3 trading update announcement on 11 November 2024, Direct
Line's financial performance has been in line with management's expectations.
13. Ratings and Outlook
Aviva's long-term credit ratings as at 16 September 2024 were Aa3, AA- and AA-
with respect to the Insurance Financial Strength Rating by Moody's, S&P
and Fitch respectively, and A2, A and A+ with respect to the Insurance Credit
Rating by Moody's, S&P and Fitch respectively. The outlook given by all
rating agencies is stable. Following the commencement of the Offer Period, on
10 December 2024, 6 December 2024 and 12 December 2024, respectively, Moody's,
S&P and Fitch released press statements to affirm Aviva's aforementioned
credit ratings and outlook.
Direct Line's long-term credit ratings as at 30 October 2024 were A2 for the
Insurance Financial Strength Rating of U K Insurance Limited, Baa2 for its
subordinated debt rating and Ba1 for its restricted tier 1 securities -
preferred stock non-cumulative rating. Following commencement of the Offer
Period, on 10 December 2024, Moody's placed Direct Line's ratings on review
for upgrade. Previously the outlooks were stable.
Following the Acquisition becoming Effective, the earnings, assets and
liabilities of the Direct Line Group would be consolidated into the earnings,
assets and liabilities of the Aviva Group. The earnings, assets and
liabilities of the Aviva Group would thereby be increased. In addition, the
cash and cash equivalents position of the Aviva Group would be decreased to
reflect the payment of the Offer Consideration to Scheme Shareholders in
connection with the Acquisition.
14. Direct Line Share Plans
Participants in the Direct Line Share Plans will be contacted regarding the
effect of the Acquisition on their options and awards under the Direct Line
Share Plans and appropriate proposals will be made to such participants in
accordance with Rule 15 of the Takeover Code. Further details on such
proposals will be set out in the Scheme Document and in separate letters to be
sent to participants in the Direct Line Share Plans.
15. Financing
The cash consideration payable under the terms of the Acquisition will be
funded from Aviva's existing cash resources. In addition, Aviva has entered
into the Facility Agreement in an amount of up to £1.85 billion to satisfy
the certain funds requirement of the Takeover Code.
Goldman Sachs International and Citi, in their capacity as joint financial
advisers to Aviva, are satisfied that sufficient resources are available to
Aviva to enable it to satisfy in full the cash consideration payable under the
terms of the Acquisition.
Further information on the financing of the Acquisition will be set out in the
Scheme Document.
16. Acquisition-related arrangements
Confidentiality Agreement
On 8 December 2024, Aviva and Direct Line entered into a confidentiality
agreement (the "Confidentiality Agreement") in connection with the
Acquisition, pursuant to which, amongst other things, each of Aviva and Direct
Line has undertaken to keep confidential information relating to the other
party and/or to the Acquisition and not to disclose it to third parties (with
certain exceptions). These confidentiality obligations will remain in force
for 24 months from the date of the Confidentiality Agreement, except where
expressly provided otherwise in the terms of the Confidentiality Agreement.
The Confidentiality Agreement also contains undertakings from Aviva that, for
a period of 12 months from the date of the Confidentiality Agreement, Aviva
shall not solicit or endeavour to entice away certain employees of Direct Line
or the Direct Line Group.
Clean Team Agreement and Joint Defence Agreement
On 12 December 2024, Aviva and Direct Line entered into a clean team agreement
which sets out, among other things, how confidential information that is
competitively sensitive can be disclosed, used or shared between Aviva's clean
team individuals and/or external advisers and Direct Line's clean team
individuals and/or external advisers.
On 9 December 2024, Aviva, Direct Line and their respective external counsel
entered into a Confidentiality and Joint Defence Agreement, the purpose of
which is to ensure that the exchange and/or disclosure of certain materials
relating to the parties and in relation to, in particular, the anti-trust and
regulatory workstream only takes place between their respective external
counsel and external experts, and does not diminish in any way the
confidentiality of such materials and does not result in a waiver of any
privilege, right or immunity that might otherwise be available.
Co-operation Agreement
On the date of this Announcement, Aviva and Direct Line entered into a
co-operation agreement ("Co-operation Agreement") in relation to the
Acquisition. Pursuant to the Co-operation Agreement, among other things:
· Aviva has agreed to use all reasonable endeavours to
obtain the regulatory clearances and authorisations necessary to satisfy the
Conditions set out in paragraphs 3(a) and 3(c) of Part A of Appendix 1 to this
Announcement as soon as is reasonably practicable and in any event in
sufficient time to enable the Effective Date to occur prior to the Long Stop
Date;
· Aviva and Direct Line have agreed to certain customary
undertakings to co-operate in relation to such regulatory clearances and
authorisations;
· Aviva has agreed to pay a break fee of £60 million to
Direct Line if the Condition set out in paragraph 3(c)(ii) of Part A of
Appendix 1 to this Announcement is invoked or is not satisfied by the Long
Stop Date;
· the parties have agreed certain arrangements and
limitations in relation to the payments of dividends, as summarised in
paragraph 11 above;
· the parties have agreed to (i) certain provisions that
shall apply with respect to the Direct Line Share Plans, its other incentive
arrangements and other employee-related matters (further details of which will
be provided in the Scheme Document); and (ii) certain provisions if the
Acquisition should switch to a Takeover Offer; and
· Aviva has also agreed to provide Direct Line with certain
information for the purposes of the Scheme Document and to otherwise assist
with the preparation of the Scheme Document.
The Co-operation Agreement records the intention of Aviva and Direct Line to
implement the Acquisition by way of the Scheme, subject to Aviva's right to
switch to a Takeover Offer in certain circumstances. Aviva and Direct Line
have agreed to certain customary provisions if the Scheme should switch to a
Takeover Offer.
The Co-operation Agreement shall terminate in certain customary circumstances,
including but not limited to:
· if agreed in writing between Aviva and Direct Line;
· upon written notice served by Aviva to Direct Line if the
Direct Line Directors' recommendation in respect of the Acquisition changes in
a manner that is adverse in the context of the Acquisition;
· upon written notice by either Aviva or Direct Line to the
other if: (i) prior to the Long Stop Date, a third party offer for Direct Line
becomes effective or is declared or becomes unconditional; (ii) if the
Acquisition (whether implemented by way of the Scheme or the Takeover Offer)
is withdrawn, terminates or lapses in accordance with its terms and (where
required) with the permission of the Panel, unless such lapse or withdrawal:
(a) is as a result of a switch to a Takeover Offer; or (b) is to be followed
promptly by a firm intention announcement (under Rule 2.7 of the Takeover
Code) made by Aviva or any person acting in concert with Aviva to implement
the Acquisition by a different offer or scheme on substantially the same or
improved terms, and such announcement is made within 5 Business Days of such
lapse or withdrawal; (iii) prior to the Long Stop Date: (a) any Condition
which has not been waived is (or has become) incapable of satisfaction by the
Long Stop Date and, notwithstanding that it has the right to waive such
Condition, Aviva has stated in writing that it shall not do so; or (b) any
Condition which is incapable of waiver is (or has become) incapable of
satisfaction by the Long Stop Date, in each case in circumstances where the
invocation of the relevant Condition is permitted by the Panel; (iv) if the
Scheme is not approved at the Court Meeting, the Direct Line Resolution(s) are
not passed at the General Meeting or the Court refuses to sanction the Scheme;
(v) (other than where Aviva has switched to a Takeover Offer), if the Court
Meeting, General Meeting or Sanction Hearing are not held on or before the
22(nd) day after the expected data of such hearing or meeting as set out in
the Scheme Documents; (vi) a break fee has become payable by Aviva; or (vii)
unless otherwise agreed by the parties in writing or required by the Panel,
the Effective Date has not occurred by the Long Stop Date; and
· on the Effective Date.
17. Structure of the Acquisition
Structure
It is intended that the Acquisition will be implemented by means of a
Court-sanctioned scheme of arrangement between Direct Line and the Scheme
Shareholders under Part 26 of the Companies Act. Aviva reserves the right to
elect to effect the Acquisition by way of a Takeover Offer (subject to the
consent of the Panel (where necessary) and the terms of the Co-operation
Agreement).
The purpose of the Scheme is to provide for Aviva to become the holder of the
entire issued and to be issued ordinary share capital of Direct Line. This is
to be achieved by the transfer of the Scheme Shares to Aviva, in consideration
for which Scheme Shareholders will receive the Offer Consideration on the
basis set out in paragraph 2 of this Announcement.
The cash consideration payable under the terms of the Acquisition will be
despatched, and the New Aviva Shares will be issued by Aviva, to Scheme
Shareholders no later than 14 days after the Effective Date.
Conditions to the Acquisition
The Acquisition is subject to the Conditions, certain further terms referred
to in Appendix 1 to this Announcement and the full terms and conditions to be
set out in the Scheme Document, and shall only become Effective if, among
other things, the following events occur on or before the Long Stop Date:
· a resolution to approve the Scheme is passed by a
majority in number of the Scheme Shareholders present and voting (and entitled
to vote) at the Court Meeting, either in person or by proxy, representing at
least 75 per cent. in value of the Scheme Shares voted by those Scheme
Shareholders;
· the Direct Line Resolution(s) required to implement the
Acquisition are duly passed by Direct Line Shareholders at the General Meeting
(which will require approval of Direct Line Shareholders representing at least
75 per cent. of the votes validly cast at such General Meeting, either in
person or by proxy);
· certain regulatory approvals as described in Appendix 1
(including approvals from the PRA and the FCA, (being the primary regulators
of the Direct Line Group's businesses), as well as the CMA) are obtained (or
waived, as applicable);
· the FCA having acknowledged that the application for
Admission has been approved and the London Stock Exchange having acknowledged
that the New Aviva Shares will be admitted to trading on the Main Market;
· following the Court Meeting and the General Meeting, the
Scheme is sanctioned by the Court (without modification, or with modification
on terms agreed by Aviva and Direct Line); and
· following such sanction, a copy of the Court Order is
delivered to the Registrar of Companies.
The Conditions in paragraph 2 of Part A of Appendix 1 to this Announcement
provide that the Scheme will lapse if:
· the Court Meeting and the General Meeting are not held on
or before the 22(nd) day after the expected date of such meetings to be set
out in the Scheme Document in due course (or such later date, if any, (a) as
Aviva and Direct Line may agree or (b) (in a competitive situation) as may be
specified by Aviva with the consent of the Panel, and in each case that (if so
required) the Court may allow);
· the Court hearing to sanction the Scheme is not held on
or before the 22(nd) day after the expected date of such hearing to be set out
in the Scheme Document in due course (or such later date, if any, (a) as Aviva
and Direct Line may agree or (b) (in a competitive situation) as may be
specified by Aviva with the consent of the Panel, and in each case that (if so
required) the Court may allow); or
· the Scheme does not become Effective on or before the
Long Stop Date (or such later date, if any, (a) as Aviva and Direct Line may
agree or (b) (in a competitive situation) as may be specified by Aviva with
the consent of the Panel, and in each case that (if so required) the Court may
allow).
Effect of the Scheme and publication of the Scheme Document
Subject to the satisfaction (or, where applicable, waiver) of the Conditions
and the further terms set out in Appendix 1 to this Announcement, the Scheme
is expected to become Effective in mid-2025.
Upon the Scheme becoming Effective: (i) it will be binding on all Scheme
Shareholders, irrespective of whether or not they attended or voted at the
Court Meeting or the General Meeting (and if they attended and voted, whether
or not they voted in favour); (ii) entitlements to Direct Line Shares held
within the CREST system will be cancelled; and (iii) share certificates in
respect of Direct Line Shares will cease to be valid. Direct Line Shareholders
shall be required to return share certificates to Direct Line or destroy them
following the Effective Date.
Any Direct Line Shares issued before the Scheme Record Time will be subject to
the terms of the Scheme and any Direct Line Shares issued following the Scheme
Record Time will be transferred to Aviva (or as it may direct) in exchange for
the same consideration as would be due under the Scheme (in each case, subject
to the Scheme becoming Effective in accordance with its terms). The Direct
Line Resolution(s) at the General Meeting will, amongst other matters, provide
that the Direct Line Articles be amended to incorporate provisions requiring
any Direct Line Shares issued after the Scheme Record Time (other than to
Aviva and/or its nominees) to be automatically transferred to Aviva on the
same terms as the Acquisition (other than terms as to timings and
formalities). The provisions of the Direct Line Articles (as amended) will
avoid any person (other than Aviva and its nominees) holding shares in the
capital of Direct Line after the Effective Date.
Further details of the Scheme, including expected times and dates for each of
the Court Meeting, the General Meeting and the Sanction Hearing, together with
notices of the Court Meeting and General Meeting, will be set out in the
Scheme Document.
A short extension to the customary 28-day period for publication of the Scheme
Document has been requested of, and consented to by, the Panel having regard
to, amongst other things, the time required to report on the new Aviva 2025
Profit Forecast, the availability of Court dates, and ensuring that the Scheme
Document contains the most recent information as at the time of the Court
Meeting and General Meeting. Accordingly, it is expected that the Scheme
Document together with the associated Forms of Proxy, will be published
beginning-mid February 2025. The Court Meeting and General Meeting are
expected to be held in March 2025. The General Meeting is expected to be held
immediately after the Court Meeting.
The Scheme will be governed by English law and is subject to the jurisdiction
of the Court. The Scheme will also be subject to the applicable requirements
of the Takeover Code, the Panel, the London Stock Exchange and the FCA.
18. Cancellation of trading of shares
Prior to the Scheme becoming Effective, it is intended that an application
will be made to the FCA and the London Stock Exchange to, subject to the
Acquisition becoming Effective, cancel the listing of Direct Line Shares on
the Official List and the trading of Direct Line Shares on the London Stock
Exchange respectively, with effect from or shortly following the Effective
Date.
The last day of dealings in, and registration of transfers of, Direct Line
Shares on the London Stock Exchange is expected to be the Business Day
immediately prior to the Effective Date and no transfers will be registered
after 6:00 p.m. (London time) on that date.
If the Acquisition is effected by way of a Takeover Offer, it is anticipated
that the cancellation of Direct Line's listing on the Official List and
admission to trading on the London Stock Exchange's market for listed
securities will take effect no earlier than 20 Business Days following the
date on which the Takeover Offer becomes or is declared unconditional provided
Aviva has obtained 75 per cent. or more of the voting rights of Direct Line.
On the Effective Date, share certificates in respect of Direct Line Shares
will cease to be valid and entitlements to Direct Line Shares held within the
CREST system will be cancelled. Direct Line Shareholders shall be required to
return share certificates to Direct Line or destroy them following the
Effective Date.
19. Admission to Official List and to trading on the
London Stock Exchange and dealings in New Aviva Shares
Application will be made to the FCA and the London Stock Exchange for the New
Aviva Shares to be admitted to the Official List and to trading on the London
Stock Exchange's market for listed securities respectively. It is expected
that Admission will become effective and that dealings for normal settlement
in the New Aviva Shares will commence on the London Stock Exchange at 8.00
a.m. on the first Business Day following the Effective Date.
20. Disclosure of interests in Direct Line
As at the Latest Practicable Date, Aviva and those persons acting in concert
(within the meaning of the Takeover Code) with it had the following interests
in Direct Line securities:
Direct Line Shares
Name Number of Direct Line Shares Percentage of Direct Line Shares
Aviva Plc 3,876,358* 0.29 per cent.
*Aviva plc does not have investment discretion over 3,507,981 shares, however
full voting authority is retained.
Securities Borrowing and Lending
Name Number of Direct Line Shares Nature of interest Percentage of Direct Line Shares
Goldman Sachs Bank Europe SE 72,249 Lent 0.01 per cent.
Save for the details above, as at the Latest Practicable Date, neither Aviva,
nor any of its directors, nor, so far as Aviva is aware, any person acting in
concert (within the meaning of the Takeover Code) with any of them for the
purposes of the Acquisition had:
(i) any interest in or right to subscribe for any
relevant securities of Direct Line;
(ii) any short positions in respect of relevant securities
of Direct Line (whether conditional or absolute and whether in the money or
otherwise), including any short position under a derivative, any agreement to
sell or any delivery obligation or right to require another person to purchase
or take delivery;
(iii) borrowed or lent any relevant securities of Direct
Line (including, for these purposes, any financial collateral arrangements of
the kind referred to in Note 4 on Rule 4.6 of the Takeover Code), save for any
borrowed relevant securities of Direct Line which had been either on-lent or
sold; or
(iv) entered into any dealing arrangement of the kind
referred to in Note 11 on the definition of acting in concert in the Takeover
Code.
"Interests in securities" for these purposes arise, in summary, when a person
has long economic exposure, whether absolute or conditional, to changes in the
price of securities (and a person who only has a short position in securities
is not treated as interested in those securities). In particular, a person
will be treated as having an 'interest' by virtue of the ownership, voting
rights or control of securities, or by virtue of any agreement to purchase,
option in respect of, or derivative referenced to, securities.
21. General
The New Aviva Shares will be issued credited as fully paid and will rank pari
passu in all respects with the existing Aviva Shares, including the right to
receive and retain in full all dividends and other distributions (if any)
made, paid or declared by reference to a record date falling on or after the
Effective Date. The New Aviva Shares to be issued pursuant to the Acquisition
are not being offered to the public by means of this Announcement.
Fractions of New Aviva Shares will not be allotted or issued to Direct Line
Shareholders. Instead, all fractional entitlements will be rounded down to the
nearest whole number of New Aviva Shares and all fractions of New Aviva Shares
will be aggregated and sold in the market as soon as practicable after the
Acquisition becomes Effective. The net proceeds of such sale (after deduction
of all expenses and commissions incurred in connection with the sale) will be
distributed in due proportions to Direct Line Shareholders who would otherwise
have been entitled to such fractions, save that if the entitlement of any
Direct Line Shareholder in respect of the proceeds of sale of fractional
entitlements amounts to less than £5, such proceeds will be retained for the
benefit of the Combined Group.
Aviva reserves the right to elect (with the consent of the Panel and subject
to the terms of the Co-operation Agreement) to implement the Acquisition by
way of a Takeover Offer for the entire issued and to be issued ordinary share
capital of Direct Line as an alternative to the Scheme. In such event, the
Acquisition will be implemented on substantially the same terms, so far as
applicable, as those which would apply to the Scheme, subject to appropriate
amendments to reflect, among other things, the change in method effecting the
Acquisition (including, without limitation) inclusion of an acceptance
condition set at 75 per cent. of the Direct Line Shares (or such lesser
percentage as Aviva may decide after, to the extent necessary, consultation
with the Panel, being in any case more than 50 per cent. of the Direct Line
Shares), the inclusion of a long-stop date on which the Takeover Offer will
cease to proceed, will lapse or will be withdrawn in certain circumstances,
and those amendments required by, or deemed appropriate by, Aviva under
applicable law.
The Acquisition will be subject to the Conditions and further terms set out in
Appendix 1 to this Announcement and the full terms and conditions to be set
out in the Scheme Document in due course. The sources and bases of certain
financial information contained in this Announcement are set out in Appendix 2
to this Announcement. A summary of the irrevocable undertakings given in
relation to the Acquisition is contained in Appendix 3 to this Announcement.
For a discussion of the risks to Aviva as a result of the Acquisition see
Appendix 4. Information relating to the Quantified Financial Benefits
Statement made in this Announcement and the reports of the Aviva reporting
accountants and financial advisers are set out in Appendix 5. Appendix 6
contains a confirmation from the Aviva Directors in respect of the Aviva 2026
Profit Forecast. Certain terms used in this Announcement are defined in
Appendix 7 to this Announcement.
For the purposes of Rule 28 of the Takeover Code, the Quantified Financial
Benefits Statement contained in this Announcement is the responsibility of
Aviva and the Aviva Directors. Appendix 5 sets out the Quantified Financial
Benefits Statement relating to anticipated cost savings and synergies arising
out of the Acquisition and provides underlying information and bases of
belief. Appendix 5 also includes reports from Aviva's reporting accountants,
PwC, and its joint financial advisers, Goldman Sachs International and Citi,
in connection with the Quantified Financial Benefits Statement, as required
pursuant to Rule 28.1(a) of the Takeover Code, and provides underlying
information and bases for the reporting accountants' and financial advisers'
respective reports. Each of PwC, Goldman Sachs International and Citi has
given and not withdrawn its consent to the publication of its report in this
Announcement in the form and context in which it is included pursuant to Rule
23.2 of the Takeover Code.
Goldman Sachs International, Citi, Morgan Stanley, Robey Warshaw LLP and RBC
Capital Markets have each given and not withdrawn their consent to the
inclusion in this Announcement of the references to their names in the form
and context in which they appear.
The availability of the Acquisition to Direct Line Shareholders who are not
resident in and citizens of the United Kingdom may be affected by the laws of
the relevant jurisdictions in which they are located or of which they are
citizens. Persons who are not resident in the United Kingdom should inform
themselves of, and observe, any applicable legal or regulatory requirements of
their jurisdictions. Direct Line Shareholders who are in any doubt regarding
such matters should consult an appropriate independent professional adviser in
the relevant jurisdiction without delay.
22. Documents available on website
Copies of the following documents will be made available on Aviva's and Direct
Line's websites at https://www.aviva.com/investors/ and Direct Line's website
at https://www.directlinegroup.co.uk/en/investors respectively by no later
than noon on the Business Day following this Announcement and until the end of
the Acquisition:
· this Announcement;
· the irrevocable undertakings referred to in paragraph 6
of this Announcement and summarised in Appendix 3 to this Announcement;
· the documents relating to the financing of the
Acquisition referred to in paragraph 15 of this Announcement;
· the Confidentiality Agreement referred to in paragraph 16
of this Announcement;
· the Clean Team Agreement referred to in paragraph 16 of
this Announcement;
· the Joint Defence Agreement referred to in paragraph 16
of this Announcement;
· the Co-operation Agreement referred to in paragraph 16 of
this Announcement; and
· the written consent letter from each of Goldman Sachs
International, Citi, Morgan Stanley, Robey Warshaw LLP, RBC Capital Markets,
and PwC as referred to in paragraph 21 of this Announcement.
The contents of the websites referred to in this Announcement and any websites
accessible from hyperlinks on these websites are not incorporated into and do
not form part of this Announcement.
Enquiries:
Aviva
Media
Andrew Reid +44 (0)7800 694 276
Sarah Swailes +44 (0)7800 694 859
Investors and analysts
Greg Neilson +44 (0)7800 694 564
Joel von Sternberg +44 (0)7384 231 238
Michael O'Hara +44 (0)7387 234 388
Citigroup Global Markets Limited (Joint Financial Adviser and Joint Corporate
Broker to Aviva)
Peter Brown / Sian Evans / Peter Catterall / Michael Lamb +44 (0)20 7986 4000
Goldman Sachs International (Joint Financial Adviser and Joint Corporate
Broker to Aviva)
Anthony Gutman / Nimesh Khiroya / Bertie Whitehead +44 (0)20 7774 1000
Direct Line Group
Media
Roger Lowry (Director of Corporate Affairs) +44 (0)7881 553 155
Investors and analysts
Dhruv Gahlaut, CFA (Chief Strategy & Investor Relations Officer) +44 (0)7385 481177
Morgan Stanley (Joint Lead Financial Adviser and Joint Corporate Broker to
Direct Line)
Ben Grindley / Laurence Hopkins / Melissa Godoy / Jonathan Gold +44 (0) 20 7425 8000
Robey Warshaw LLP (Joint Lead Financial Adviser to Direct Line)
Simon Robey / Chetan Singh / Kunal Ranpara +44 (0) 20 7317 3999
RBC Capital Markets (Joint Financial Adviser and Joint Corporate Broker to
Direct Line)
Oliver Hearsey / Daniel Ohana / Elliot Thomas +44 (0) 20 7653 4000
Brunswick Group (PR Adviser to Direct Line)
Tom Burns / Diana Vaughton / Freya Semken +44 (0)20 7404 5959
Clifford Chance LLP is acting as legal adviser to Aviva and Slaughter and May
is acting as legal adviser to Direct Line.
Important notices about financial advisers
Citigroup Global Markets Limited ("Citi"), which is authorised by the
Prudential Regulation Authority ("PRA") and regulated in the UK by the
Financial Conduct Authority ("FCA") and the PRA is acting as financial adviser
exclusively for Aviva and for no one else in connection with the matters
described in this Announcement, and will not be responsible to anyone other
than Aviva for providing the protections afforded to its clients nor for
providing advice in relation to the matters referred to in this Announcement.
Neither Citi nor any of its affiliates, directors or employees owes or accepts
any duty, liability or responsibility whatsoever (whether direct or indirect,
consequential, whether in contract, tort, in delict, under statute or
otherwise) to any person who is not a client of Citi in connection with this
Announcement, any statement contained herein or otherwise.
Goldman Sachs International, which is authorised by the PRA and regulated by
the FCA and the PRA in the United Kingdom, is acting exclusively for Aviva and
no one else in connection with the matters referred to in this Announcement
and will not be responsible to anyone other than Aviva for providing the
protections afforded to clients of Goldman Sachs International, or for
providing advice in connection with the matters referred to in this
Announcement.
Morgan Stanley & Co. International plc ("Morgan Stanley"), which is
authorised by the PRA and regulated by the PRA and the FCA in the United
Kingdom, is acting exclusively for Direct Line and for no one else in
connection with the possible offer and neither Morgan Stanley nor any of its
affiliates, nor their respective directors, officers, employees or agents will
be responsible to anyone other than Direct Line for providing the protections
afforded to its clients or for providing advice in relation to the possible
offer, the contents of this Announcement or any other matters referred to in
this Announcement.
Robey Warshaw LLP, which is authorised and regulated in the United Kingdom by
the FCA, is acting as financial adviser exclusively for Direct Line and no one
else in connection with the matters referred to in this Announcement and will
not regard any other person as its client in relation to the matters referred
to in this Announcement and will not be responsible to anyone other than
Direct Line for providing the protections afforded to clients of Robey Warshaw
LLP, nor for providing advice in relation to the matters referred to in this
Announcement.
RBC Europe Limited, which is authorised by the PRA and regulated by the PRA
and the FCA in the United Kingdom, is acting exclusively for Direct Line and
for no one else in connection with the possible offer and neither RBC Europe
Limited nor any of its affiliates, nor their respective directors, officers,
employees or agents will be responsible to anyone other than Direct Line for
providing the protections afforded to its clients or for providing advice in
relation to the possible offer, the contents of this Announcement or any other
matters referred to in this Announcement.
Inside Information
This Announcement contains inside information as stipulated under the Market
Abuse Regulations (EU) No. 596/2014 as it forms part of UK law by virtue of
the European Union (Withdrawal) Act 2018. Upon the publication of this
Announcement via a Regulatory Information Service, this inside information
will be considered to be in the public domain.
The person responsible for making this Announcement on behalf of Aviva is
Susan Adams, Company Secretary.
The person responsible for making this Announcement on behalf of Direct Line
is Jane Poole, Chief Financial Officer.
Further Information
This Announcement is for information purposes only and is not intended to and
does not constitute, or form part of, any offer to sell or an invitation to
purchase any securities; a solicitation of an offer to buy, otherwise acquire,
subscribe for, sell or otherwise dispose of any securities pursuant to the
Acquisition or otherwise; or the solicitation of any vote or approval in any
jurisdiction pursuant to the Acquisition or otherwise; nor shall there be any
purchase, sale, issuance or exchange of securities or such solicitation in any
jurisdiction in which such offer, solicitation, sale issuance or exchange is
unlawful. The Acquisition will be made solely by means of the Scheme Document
(or, if the Acquisition is implemented by way of a Takeover Offer, the offer
document) which, together with any related forms of proxy, will contain the
full terms and conditions of the Acquisition, including details of how to vote
in respect of the Scheme. Any decision in respect of, or other response to,
the Acquisition should be made only on the basis of the information contained
in the Scheme Document (or, if the Acquisition is implemented by way of a
Takeover Offer, the offer document).
Direct Line will prepare the Scheme Document to be distributed to Direct Line
Shareholders. Direct Line and Aviva urge Direct Line Shareholders to read the
Scheme Document (or any other document by which the Acquisition is made) in
full when it becomes available because it will contain important information
relating to the Acquisition, including details of how to vote in respect of
the Scheme.
The statements contained in this Announcement are made as at the date of this
Announcement, unless some other time is specified in relation to them, and
publication of this Announcement shall not give rise to any implication that
there has been no change in the facts set forth in this Announcement since
such date.
This Announcement does not constitute a prospectus or prospectus equivalent
document.
Overseas jurisdictions
The release, publication or distribution of this Announcement in jurisdictions
other than the United Kingdom, and the availability of the Acquisition to
Direct Line Shareholders who are not resident in the United Kingdom, may be
restricted by the laws of those jurisdictions and therefore persons into whose
possession this Announcement comes should inform themselves about and observe
such restrictions. In particular, the ability of persons who are not resident
in the United Kingdom to vote their Direct Line Shares with respect to the
Scheme at the Court meeting, or to execute and deliver forms of proxy
appointing another to vote at the Court Meeting on their behalf, may be
affected by the laws of the relevant jurisdictions in which they are located.
Further details in relation to Overseas Shareholders will be contained in the
Scheme Document (or, if the Acquisition is implemented by way of a Takeover
Offer, the offer document). Any failure to comply with any such restrictions
may constitute a violation of the securities laws of any such jurisdiction. To
the fullest extent permitted by applicable law, the companies and persons
involved in the Acquisition disclaim any responsibility or liability for the
violation of such restrictions by any person.
Unless otherwise determined by Aviva or required by the Takeover Code, and
permitted by applicable law and regulation, the Acquisition will not be made
available, directly or indirectly, in, into or from a Restricted Jurisdiction.
Accordingly, copies of this Announcement and all documents relating to the
Acquisition are not being, and must not be, directly or indirectly, mailed or
otherwise forwarded, distributed or sent in, into or from a Restricted
Jurisdiction, and persons receiving this Announcement and all documents
relating to the Acquisition (including custodians, nominees and trustees) must
not mail or otherwise distribute or send them in, into or from such Restricted
Jurisdiction. If the Acquisition is implemented by way of Takeover Offer
(unless otherwise permitted by applicable law or regulation), the Takeover
Offer may not be made, directly or indirectly, in or into, or by use of mails
or any other means or instrumentality (including, without limitation,
facsimile, e-mail or other electronic transmission, telex or telephone) of
interstate or foreign commerce of, or any facility of a national, state or
other securities exchange of any Restricted Jurisdiction and the Takeover
Offer will not be capable of acceptance by any such use, means,
instrumentality or facilities or from within any Restricted Jurisdiction.
This Announcement has been prepared in connection with proposals in relation
to a scheme of arrangement pursuant to and for the purpose of complying with
English law and the Takeover Code and information disclosed may not be the
same as that which would have been disclosed if this Announcement had been
prepared in accordance with the laws of jurisdictions outside the United
Kingdom. Nothing in this Announcement should be relied on for any other
purpose.
The Acquisition shall be subject to the applicable requirements of the
Takeover Code, the Panel, the London Stock Exchange and the FCA.
Additional information for US investors
The Acquisition relates to the shares of an English company and is being made
by means of a scheme of arrangement provided for under English company law. A
transaction effected by means of a scheme of arrangement is not subject to the
tender offer or proxy solicitation rules under the US Securities Exchange Act
of 1934 (the "US Exchange Act"). Accordingly, the Acquisition is subject to
the disclosure requirements and practices applicable in the United Kingdom to
schemes of arrangement which differ from the disclosure requirements of the US
tender offer and proxy solicitation rules.
If, in the future, Aviva exercises its right to implement the Acquisition by
way of a Takeover Offer, which is to be made into the US, such Takeover Offer
will be made in compliance with the applicable US laws and regulations,
including Section 14(e) and Regulation 14E under the US Exchange Act. Such a
Takeover Offer would be made in the US by Aviva and no one else.
In the event that the Acquisition is implemented by way of Takeover Offer, in
accordance with, and to the extent permitted by, the Takeover Code and normal
UK market practice, Goldman Sachs International and Citi, and their respective
affiliates, may continue to act as exempt principal traders or exempt market
makers in Direct Line Shares on the London Stock Exchange and will engage in
certain other purchasing activities consistent with their respective normal
and usual practice and applicable law, as permitted by Rule 14e-5(b)(9) under
the US Exchange Act. In addition, Aviva, its affiliates, their advisors and
the nominees or brokers (acting as agents) may make certain purchases of, or
arrangements to purchase, shares in Direct Line outside the Acquisition, such
as in open market purchases or privately negotiated purchases, during the
period in which the Acquisition remains open for acceptance. If such purchases
or arrangements to purchase were to be made, they would be made outside the US
and would comply with applicable law, including United Kingdom laws and the US
Exchange Act. Any such purchases by Aviva or its affiliates will not be made
at prices higher than the price of the Acquisition provided in this
Announcement unless the price of the Acquisition is increased accordingly. Any
information about such purchases or arrangements to purchase shall be
disclosed as required under United Kingdom laws and will be available to all
investors (including US investors) via the Regulatory Information Service and
shall be available on the London Stock Exchange website at
www.londonstockexchange.com. To the extent that such information is required
to be publicly disclosed in the United Kingdom in accordance with applicable
regulatory requirements, this information will, as applicable, also be
publicly disclosed in the United States.
It may be difficult for US holders of Direct Line Shares to enforce their
rights and any claim arising out of the US federal securities laws in
connection with the Acquisition, since Aviva and Direct Line are located in a
non-US jurisdiction, and some or all of their officers and directors may be
residents of a non-US jurisdiction. US holders of Direct Line Shares may not
be able to sue a non-US company or its officers or directors in a non-US court
for violations of the US securities laws. Further, it may be difficult to
compel a non-US company and its affiliates to subject themselves to a US
court's judgement.
The New Aviva Shares to be issued pursuant to the Acquisition have not been
registered under the US Securities Act 1933 or under any laws or with any
securities regulatory authority of any state, district or other jurisdiction,
of the US, and may only be offered or sold in the US in reliance on an
exemption from registration requirements of the US Securities Act including in
the case of the proposed scheme of arrangement, Section 3(a)(10) thereunder.
The financial information included in this Announcement, has been prepared in
accordance with accounting standards applicable in the United Kingdom and thus
may not be comparable to financial information of US companies or companies
whose financial statements are prepared in accordance with generally accepted
accounting principles in the US ("US GAAP"). US GAAP differs in certain
significant respects from accounting standards applicable in the United
Kingdom. None of the financial information in this Announcement has been
audited in accordance with auditing standards generally accepted in the United
States or the auditing standards of the Public Company Accounting Oversight
Board (United States).
Neither the Acquisition nor this Announcement have been approved or
disapproved by the US Securities and Exchange Commission, any state securities
commission in the United States or any other US regulatory authority, nor have
such authorities approved or disapproved or passed judgement upon the fairness
or the merits of the Acquisition, or determined if the information contained
in this Announcement is adequate, accurate or complete. Any representation to
the contrary is a criminal offence in the United States.
The receipt of New Aviva Shares and/or cash pursuant to the Acquisition by a
US holder as consideration for the transfer of its Direct Line Shares pursuant
to the Acquisition may be a taxable transaction for US federal income tax
purposes and under applicable US state and local, as well as foreign and
other, tax laws. Each US holder of Direct Line Shares is urged to consult
their independent legal, tax and financial advisers regarding the tax
consequences of the Acquisition applicable to them, including under applicable
US state and local, as well as overseas and other, tax laws.
American Depositary Shares and American Depositary Receipts
Aviva is aware that there is an "unsponsored" American Depositary Receipt
Program concerning Direct Line Shares. The Acquisition is not being made for
American Depositary Shares representing Direct Line Shares ("ADSs"), nor for
American Depositary Receipts evidencing such ADSs ("ADRs"). However, the
Acquisition is being made for the Direct Line Shares that are represented by
the ADSs. Holders of ADSs and ADRs are encouraged to consult with the
appropriate depositary regarding the tender of Direct Line Shares that are
represented by ADSs. Aviva is unaware of whether any respective depositary
will make arrangements to tender the underlying Direct Line Shares into the
Acquisition on behalf of holders of ADSs or ADRs.
Generally, holders of ADSs may be able to present their ADSs to the
appropriate depositary for cancellation and (upon compliance with the terms of
the deposit agreement relating to the "unsponsored" American Depositary
Receipt Program concerning Direct Line Shares, including payment of the
depositary's fees and any applicable transfer fees, taxes and governmental
charges) delivery of Direct Line Shares to them, in order to become
shareholders of the Direct Line. The Direct Line Shares delivered to holders
of ADSs upon such cancellation may then be tendered into the Acquisition.
Holders of ADSs should consult with the relevant depositary regarding their
ability to obtain the underlying Direct Line Shares and the applicable
procedures. Holders of ADSs should be aware, however, that in order to tender
in this manner, they may need to have an account in the United Kingdom into
which the Direct Line Shares can be delivered.
Forward-looking statements
This Announcement (including information incorporated by reference in this
Announcement), oral statements made regarding the Acquisition, and other
information published by Aviva or Direct Line may contain statements about
Aviva and Direct Line that are or may be deemed to be forward looking
statements. All statements other than statements of historical facts included
in this Announcement may be forward looking statements.
Without limitation, any statements preceded or followed by or that include the
words "targets", "plans", "believes", "expects", "aims", "intends", "will",
"may", "shall", "should", "anticipates", "estimates", "projects", "is subject
to", "budget", "scheduled", "forecast" or words or terms of similar substance
or the negative thereof, are forward looking statements. Forward looking
statements include statements relating to the following: (i) the ability to
complete the Acquisition in a timely manner, (ii) future capital expenditures,
expenses, revenues, earnings, synergies, economic performance, indebtedness,
financial condition, dividend policy, losses and future prospects; (iii)
business and management strategies and the expansion and growth of Aviva's or
Direct Line's operations and potential synergies resulting from the
Acquisition; and (iv) the effects of government regulation on the wider Aviva
Group's or the wider Direct Line Group's business.
Such forward looking statements are prospective in nature and are not based on
historical facts, but rather on current expectations and projections of the
management of Aviva and Direct Line about future events, and are therefore
subject to risks and uncertainties that could significantly affect expected
results and are based on certain key assumptions. Many factors could cause
actual results to differ materially from those projected or implied in any
forward looking statements, including: the impact of ongoing uncertain
conditions in the global financial markets and the national and international
political and economic situation generally, market developments and government
actions, changes in or inaccuracy of assumptions in pricing and reserving for
insurance business (particularly with regard to mortality and morbidity
trends, lapse rates and policy renewal rates), longevity and endowments, a
cyclical downturn of the insurance industry, the impact of natural and
man-made catastrophic events (including pandemics) on our business activities
and results of operation, the transitional, litigation and physical risks
associated with climate change, failure to understand and respond effectively
to the risks associated with sustainability, regulatory approval of changes to
the Aviva Group's internal model for calculation of regulatory capital under
the UK's version of Solvency II rules, the impact of recognising an impairment
of our goodwill or intangibles with indefinite lives, changes in valuation
methodologies, estimates and assumptions used in the valuation of investment
securities, the effect of legal proceedings and regulatory investigations, the
impact of operational risks, including inadequate or failed internal and
external processes, systems and human error or from external events and
malicious acts (including cyber attack and theft, loss or misuse of customer
data), increased competition, the loss of or damage to one or more key
customer relationships, changes to habits, the outcome of business or industry
restructuring, the outcome of any litigation, changes in global, political,
social, business and economic conditions, changes in the level of capital
investment, currency fluctuations, changes in interest and tax rates, changes
in market prices, changes in laws, regulations or regulatory policies,
developments in legal or public policy doctrines, technological developments,
the failure to retain key employees, or the timing and success of future offer
opportunities or major investment projects and the impact of any acquisitions
or similar transactions. Other unknown or unpredictable factors could cause
actual results to differ materially from those in the forward looking
statements.
Such forward looking statements should therefore be construed in light of such
factors. Neither Aviva nor Direct Line, nor any of their respective associates
or directors, officers or advisers, provides any representation, assurance or
guarantee that the occurrence of the events expressed or implied in any
forward looking statements in this Announcement will actually occur. Due to
such uncertainties and risks, readers are cautioned not to place undue
reliance on such forward looking statements, which speak only as of the date
hereof. All subsequent oral or written forward looking statements attributable
to any member of the Aviva Group or the Direct Line Group, or any of their
respective associates, directors, officers, employees or advisers, are
expressly qualified in their entirety by the cautionary statement above.
Aviva and Direct Line expressly disclaim any obligation to update any forward
looking or other statements contained herein, except as required by applicable
law or by the rules of any competent regulatory authority, whether as a result
of new information, future events or otherwise.
No profit forecast or estimates
Other than the Aviva 2026 Profit Forecast, no statement in this Announcement
is intended as, or is to be construed as, a profit forecast or profit estimate
for any period and no statement in this Announcement should be interpreted to
mean that earnings or earnings per Direct Line Share or Aviva Share for the
current or future financial years would necessarily match or exceed the
historical published earnings or earnings per share for Direct Line Share or
Aviva Share.
Quantified financial benefits
Statements of estimated cost savings and synergies relate to future actions
and circumstances which, by their nature, involve risks, uncertainties and
contingencies. As a result, the cost savings and synergies referred to may not
be achieved, may be achieved later or sooner than estimated, or those achieved
could be materially different from those estimated. Neither the quantified
financial benefit statements nor any other statement in this Announcement
should be construed as a profit forecast or interpreted to mean that the
Combined Group's earnings in the first full year following implementation of
the Acquisition, or in any subsequent period, would necessarily match or be
greater than or be less than those of Aviva or Direct Line for the relevant
preceding financial period or any other period.
Disclosure requirements of the Takeover Code
Under Rule 8.3(a) of the Takeover Code, any person who is interested in 1 per
cent. or more of any class of relevant securities of an offeree company or of
any securities exchange offeror (being any offeror other than an offeror in
respect of which it has been announced that its offer is, or is likely to be,
solely in cash) must make an Opening Position Disclosure following the
commencement of the Offer Period and, if later, following the announcement in
which any securities exchange offeror is first identified. An Opening Position
Disclosure must contain details of the person's interests and short positions
in, and rights to subscribe for, any relevant securities of each of (i) the
offeree company and (ii) any securities exchange offeror(s). An Opening
Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no
later than 3.30 pm (London time) on the 10th business day following the
commencement of the Offer Period and, if appropriate, by no later than 3.30 pm
(London time) on the 10th business day following the announcement in which any
securities exchange offeror is first identified. Relevant persons who deal in
the relevant securities of the offeree company or of a securities exchange
offeror prior to the deadline for making an Opening Position Disclosure must
instead make a Dealing Disclosure.
Under Rule 8.3(b) of the Takeover Code, any person who is, or becomes,
interested in 1 per cent. or more of any class of relevant securities of the
offeree company or of any securities exchange offeror must make a Dealing
Disclosure if the person deals in any relevant securities of the offeree
company or of any securities exchange offeror. A Dealing Disclosure must
contain details of the dealing concerned and of the person's interests and
short positions in, and rights to subscribe for, any relevant securities of
each of (i) the offeree company and (ii) any securities exchange offeror(s),
save to the extent that these details have previously been disclosed under
Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be
made by no later than 3.30 pm (London time) on the business day following the
date of the relevant dealing.
If two or more persons act together pursuant to an agreement or understanding,
whether formal or informal, to acquire or control an interest in relevant
securities of an offeree company or a securities exchange offeror, they will
be deemed to be a single person for the purpose of Rule 8.3.
Opening Position Disclosures must also be made by the offeree company and by
any offeror and Dealing Disclosures must also be made by the offeree company,
by any offeror and by any persons acting in concert with any of them (see
Rules 8.1, 8.2 and 8.4).
Details of the offeree and offeror companies in respect of whose relevant
securities Opening Position Disclosures and Dealing Disclosures must be made
can be found in the Disclosure Table on the Panel's website at
www.thetakeoverpanel.org.uk, including details of the number of relevant
securities in issue, when the Offer Period commenced and when any offeror was
first identified. You should contact the Panel's Market Surveillance Unit on
+44 (0)20 7638 0129 if you are in any doubt as to whether you are required to
make an Opening Position Disclosure or a Dealing Disclosure.
Publication on website
A copy of this Announcement and the documents required to be published
pursuant to Rule 26 of the Takeover Code will be available, free of charge,
subject to certain restrictions relating to persons resident in Restricted
Jurisdictions, on Aviva's website at https://www.aviva.com/investors/ and
Direct Line's website at https://www.directlinegroup.co.uk/en/investors by no
later than 12.00 noon (London Time) on the Business Day following the
publication of this Announcement.
For the avoidance of doubt, the contents of these websites and any websites
accessible from hyperlinks on these websites are not incorporated into and do
not form part of this Announcement.
Information relating to Direct Line Shareholders
Please be aware that addresses, electronic addresses and certain other
information provided by Direct Line Shareholders, persons with information
rights and other relevant persons for the receipt of communications from
Direct Line may be provided to Aviva during the Offer Period as required under
Section 4 of Appendix 4 of the Takeover Code.
Right to receive documents in hard copy form
In accordance with Rule 30.3 of the Takeover Code, Direct Line Shareholders,
participants in the Direct Line Share Plans and persons with information
rights may request a hard copy of this Announcement, free of charge, by
contacting Direct Line's registrars, Computershare Investor Services PLC,
during business hours on +44 (0)370 873 5880, or by submitting a request in
writing to The Pavilions, Bridgwater Road, Bristol BS99 6ZY. If calling from
outside of the UK, please ensure the country code is used. For persons who
receive a copy of this Announcement in electronic form or via a website
notification, a hard copy of this Announcement will not be sent unless so
requested. Such persons may also request that all future documents,
announcements and information in relation to the Acquisition are sent to them
in hard copy form. Please note that Computershare Investor Services PLC cannot
provide any financial, legal or tax advice and calls may be recorded and
monitored for security and training purposes.
Rounding
Certain figures included in this Announcement have been subjected to rounding
adjustments. Accordingly, figures shown for the same category presented in
different tables may vary slightly and figures shown as totals in certain
tables may not be an arithmetic aggregation of the figures that precede them.
General
If you are in any doubt about the contents of this Announcement or the action
you should take, you are recommended to seek your own independent financial
advice immediately from your stockbroker, bank manager, solicitor or
independent financial adviser duly authorised under FSMA if you are resident
in the United Kingdom or, if not, from another appropriately authorised
independent financial adviser.
Appendix 1
CONDITIONS AND FURTHER TERMS OF THE SCHEME AND THE Acquisition
Part A: CONDITIONS TO THE SCHEME AND THE Acquisition
Long Stop Date
1. The Acquisition will be conditional upon the Scheme
becoming unconditional and becoming Effective, subject to the Takeover Code,
by not later than the Long Stop Date.
Scheme approval Conditions
2. The Scheme will be subject to the following
Conditions:
(a) (i) its approval by a majority in number of the
Scheme Shareholders who are present and voting (and entitled to vote), either
in person or by proxy, at the Court Meeting and at any separate class meeting
which may be required (or any adjournment thereof), and who represent not less
than 75 per cent. in value of the Scheme Shares voted by those Scheme
Shareholders; and (ii) such Court Meeting and any such separate class meeting
(or any adjournment thereof) being held on or before the 22(nd) day after the
expected date of the Court Meeting to be set out in the Scheme Document in due
course (or such later date, if any, (a) as Aviva and Direct Line may agree or
(b) (in a competitive situation) as may be specified by Aviva with the consent
of the Panel, and in each case that (if so required) the Court may allow);
(b) (i) the Direct Line Resolution(s) being duly passed by
the requisite majority or majorities of Direct Line Shareholders at the
General Meeting (or any adjournment thereof); and (ii) such General Meeting
being held on or before the 22(nd) day after the expected date of such meeting
to be set out in the Scheme Document in due course (or such later date, if
any, (a) as Aviva and Direct Line may agree or (b) (in a competitive
situation) as may be specified by Aviva with the consent of the Panel, and in
each case that (if so required) the Court may allow); and
(c) (i) the sanction of the Scheme by the Court (with or
without modification, but subject to any such modification being on terms
acceptable to Direct Line and Aviva) and the delivery of a copy of the Court
Order to the Registrar of Companies; and (ii) the Court hearing to sanction
the Scheme being held on or before the 22(nd) day after the expected date of
such hearing to be set out in the Scheme Document in due course (or such later
date, if any, (a) as Aviva and Direct Line may agree or (b) (in a competitive
situation) as may be specified by Aviva with the consent of the Panel, and in
each case that (if so required) the Court may allow).
General Conditions
3. In addition, subject as stated in Part B of this
Appendix 1, and to the requirements of the Panel, Aviva and Direct Line have
agreed that the Acquisition will be conditional upon the following Conditions
and, accordingly, the necessary actions to make the Scheme Effective will not
be taken unless the following Conditions (as amended if appropriate) have been
satisfied or, where relevant, waived:
Regulatory
(a) the appropriate regulator (as defined in section
178(2A) of FSMA) of each UK authorised person (as defined in section 191G of
FSMA) within the Direct Line Group in which Aviva and any other person who,
for the purposes of section 178 of FSMA, would be a controller (as such term
is defined under section 422 of FSMA) (each a "Controller"), as a result of
the implementation of the Acquisition, will acquire control or (if applicable)
increase control over (within the meaning of Part XII FSMA):
(i) having given notice for the purpose of section
189(4)(a) of FSMA that it has determined to approve such acquisition of or
increase in control unconditionally;
(ii) having given notice for the purpose of section 189(7)
of FSMA that it has determined to approve such acquisition of or increase in
control subject to conditions, with such conditions being satisfactory to
Aviva or such other Controller (as applicable) (acting reasonably); or
(iii) being treated, by virtue of section 189(6) of FSMA, as
having approved such acquisition of or increase in control;
where references to FSMA are read, where applicable, with the Financial
Services and Markets Act 2000 (Controllers) (Exemptions) Order 2009 (as
amended from time to time);
(b) the SRA having given notice:
(i) for the purpose of paragraph 27(2) of Schedule 13 to
the LSA that it has determined to approve the acquisition of a restricted
interest (as defined in paragraph 2(1) of Schedule 13 to the LSA (a
"Restricted Interest")) by Aviva and any other person who, for the purposes of
paragraph 3(1) of Schedule 13 to the LSA, would hold a material interest in
DLG Legal Services Limited (a "Material Interest Holder") unconditionally; or
(ii) for the purpose of paragraph 28(7) of Schedule 13 to
the LSA that it has determined to approve the acquisition of a Restricted
Interest by a Material Interest Holder in DLG Legal Services Limited subject
to conditions, with such conditions being satisfactory to Aviva or such other
Material Interest Holder (as applicable) (acting reasonably);
Antitrust
(c) either:
(i) the CMA confirming, on terms reasonably satisfactory
to Aviva, that the Acquisition or any matter arising therefrom or related
thereto or any part of it will not be subject to a Phase 2 reference under
section 33 of the Enterprise Act 2002 or on any other statutory basis (a
"Phase 2 CMA Reference"), or the applicable time period for the CMA to make a
Phase 2 CMA Reference having expired without the CMA having made such a Phase
2 CMA Reference; or
(ii) in the event that there is a Phase 2 CMA Reference
and the Condition set out in paragraph 3(c)(i) above is waived or not invoked
by Aviva: (i) confirmation from the CMA that the Acquisition and any matter
arising therefrom and related thereto, and all parts of it, may proceed on
terms reasonably satisfactory to Aviva; and (ii) to the extent relevant, all
conditions or obligations to which such confirmation is subject and which are
required to be satisfied and/or complied with prior to Completion of the
Acquisition having been satisfied or complied with;
Admission of consideration shares
(d) (i) the FCA having acknowledged to Aviva or its agent
(and such acknowledgement not having been withdrawn) that the application for
the admission of the New Aviva Shares to the Equity Shares (Commercial
Companies) category of the Official List has been approved and (after
satisfaction of any conditions to which such approval is expressed to be
subject ("listing conditions")), admission will become effective as soon as a
dealing notice has been issued by the FCA and any listing conditions have been
satisfied; and (ii) the London Stock Exchange having acknowledged to Aviva or
its agent (and such acknowledgement not having been withdrawn) that the New
Aviva Shares will be admitted to trading on the London Stock Exchange's Main
Market for listed securities;
Other third party clearances
(e) other than in respect of or in connection with the
Conditions set out in paragraph 3(a) to 3(d), no Third Party having given
notice of a decision to take, institute, implement or threaten any action,
proceeding, suit, investigation, enquiry or reference (and in each case, not
having withdrawn the same), or having required any action to be taken or
otherwise having done anything, or having enacted, made or proposed any
statute, regulation, decision, order or change to published practice (and in
each case, not having withdrawn the same) and there not continuing to be
outstanding any statute, regulation, decision or order which would or might
reasonably be expected to:
(i) require, prevent or materially delay the divestiture
or alter the terms envisaged for such divestiture by any member of the Wider
Aviva Group or by any member of the Wider Direct Line Group of all or any part
of its businesses, assets or property (including, shares, or other securities
(or equivalent)) or impose any limitation on the ability of all or any of them
to conduct their businesses (or any part thereof) or to own, control or manage
any of their assets or properties (or any part thereof) to an extent which is
material in the context of the Wider Aviva Group or the Wider Direct Line
Group, in either case taken as a whole;
(ii) require any member of the Wider Aviva Group or the
Wider Direct Line Group to acquire or offer to acquire any shares, other
securities (or the equivalent) or interest in any member of the Wider Direct
Line Group or the Wider Aviva Group or any asset owned by any third party
(other than in the implementation of the Acquisition);
(iii) or, if applicable, pursuant to sections 974 to 991 of
the Companies Act, which is material in the context of the Wider Aviva Group
or the Wider Direct Line Group, in either case taken as a whole;
(iv) impose any material limitation on, or result in a
material delay in, the ability of any member of the Wider Aviva Group directly
or indirectly to acquire, hold or to exercise effectively all or any rights of
ownership in respect of shares or other securities in, or to exercise voting
or management control over, any member of the Wider Direct Line Group;
(v) otherwise materially adversely affect any or all of
the business, assets, profits, or prospects of the Wider Direct Line Group and
the Wider Aviva Group taken as a whole;
(vi) result in any member of the Wider Direct Line Group or
any member of the Wider Aviva Group ceasing to be able to carry on business
under any name under which it presently carries on business, to an extent
which is material in the context of the Wider Aviva Group or the Wider Direct
Line Group, in either case taken as a whole;
(vii) make the Acquisition or its implementation void,
unenforceable and/or illegal under the laws of any relevant jurisdiction, or
otherwise, directly or indirectly prevent or prohibit, restrict, restrain, or
materially delay or materially interfere with the implementation of, or impose
material additional conditions or obligations with respect to, or otherwise
materially challenge, impede or interfere with, or require material amendment
of the Acquisition; or
(viii) save as Disclosed, impose any material limitation on or
result in any material delay in the ability of any member of the Wider Aviva
Group or any member of the Wider Direct Line Group to conduct, integrate or
co-ordinate all or any part of its business with all or any part of the
business of any other member of the Wider Aviva Group and/or the Wider Direct
Line Group in a manner which is materially adverse in the context of the Wider
Aviva Group or Wider Direct Line Group, in either case taken as a whole,
and all applicable waiting and other time periods (including any extensions
thereof) during which any such Third Party could decide to take, institute,
implement or threaten any such action, proceeding, suit, investigation,
enquiry or reference or take any other step under the laws of any jurisdiction
in respect of the Acquisition or otherwise intervene having expired, lapsed or
been terminated;
(f) other than in respect of or in connection with the
Conditions set out in paragraphs 3(a) to 3(d), all filings, applications
and/or notifications which are necessary in connection with the Acquisition
having been made and all relevant waiting periods and other time periods
(including any extensions thereof) under any applicable legislation or
regulation of any jurisdiction having expired, lapsed or been terminated (as
appropriate) and all statutory or regulatory obligations in any jurisdiction
having been complied with in connection with the Acquisition or the carrying
on by any member of the Wider Direct Line Group of a material part of its
business;
(g) other than in respect of or in connection with the
Conditions set out in paragraphs 3(a) to 3(d), all necessary Authorisations
for the proposed Acquisition to acquire any shares or other securities in, or
control of, Direct Line by any member of the Wider Aviva Group having been
obtained on terms and in a form reasonably satisfactory to Aviva from all
necessary Third Parties, and all such Authorisations, together with all
Authorisations which are necessary or appropriate to carry on the business of
any member of the Wider Direct Line Group that is material in the context of
the Wider Aviva Group, remaining in full force and effect and all filings
necessary for such purpose have been made and there being no notice or
intimation of any intention to revoke, suspend, restrict, modify or not to
renew any of the same at the time at which the Acquisition becomes otherwise
unconditional and all necessary statutory or regulatory obligations in any
jurisdiction having been complied with;
Certain matters arising as a result of any arrangement, agreement, etc.
(h) except as Disclosed, there being no provision of any
arrangement, agreement, lease, licence, franchise, permit or other instrument
to which any member of the Wider Direct Line Group is a party or by or to
which any such member or any of its assets is or may be bound, entitled or be
subject or any event or circumstance which, as a consequence of the
Acquisition or because of a change in the control or management of any member
of the Wider Direct Line Group or otherwise, would reasonably be expected to
result in, in each case to an extent which is material in the context of the
Wider Direct Line Group or the Wider Aviva Group, in either case, taken as a
whole or in the context of the Acquisition:
(i) any monies borrowed by, or any other indebtedness or
liabilities, actual or contingent, of, or any grant available to, any member
of the Wider Direct Line Group being or becoming repayable, or capable of
being declared repayable, immediately or prior to its or their stated maturity
date or repayment date, or the ability of any such member to borrow monies or
incur any indebtedness being withdrawn or inhibited or being capable of
becoming or being withdrawn or inhibited;
(ii) the rights, liabilities, obligations, interests or
business of any member of the Wider Direct Line Group or any member of the
Wider Aviva Group under any such arrangement, agreement, licence, permit,
lease or instrument or the interests or business of any member of the Wider
Direct Line Group or any member of the Wider Aviva Group in or with any other
person or body or firm or company (or any agreement or arrangement relating to
any such interests or business) being or becoming capable of being terminated,
or adversely modified or affected or any onerous obligation or liability
arising or any action being taken thereunder;
(iii) any member of the Wider Direct Line Group ceasing to
be able to carry on business under any name under which it presently carries
on business, to an extent which is material in the context of the Wider Direct
Line Group taken as a whole;
(iv) any assets or interests of any member of the Wider
Direct Line Group being or failing to be disposed of or charged or ceasing to
be available to any such member or any right arising under which any such
asset or interest could be required to be disposed of or charged or could
cease to be available to any member of the Wider Direct Line Group otherwise
than in the ordinary course of business;
(v) the creation, save in the ordinary and usual course of
business, or enforcement of any mortgage, charge or other security interest
over the whole or any part of the business, property or assets of any member
of the Wider Direct Line Group or any such mortgage, charge or other security
interest (whenever created, arising or having arisen), becoming enforceable;
(vi) the business, assets, profits, value of, or the
financial or trading position or prospects of, any member of the Wider Direct
Line Group being prejudiced or adversely affected;
(vii) the creation or acceleration of any liability (actual or
contingent) by any member of the Wider Direct Line Group, other than trade
creditors or other liabilities incurred in the ordinary course of business;
(viii) any liability of any member of the Wider Direct Line
Group to make any severance, termination, bonus or other payment to any of its
directors or other officers other than in the ordinary course of business or
as permitted or countenanced by the Co-operation Agreement; or
(ix) any requirement of any member of the Wider Direct Line
Group to acquire, subscribe, pay up or repay any shares or other securities
(or the equivalent),
and, no event having occurred which, under any provision of any arrangement,
agreement, licence, permit, franchise, lease or other instrument to which any
member of the Wider Direct Line Group is a party or by or to which any such
member or any of its assets are bound, entitled or subject, would or would
reasonably be expected to result in any of the events or circumstances as are
referred to in Conditions 3(h)(i) to 3(h)(ix), in each case to an extent or in
a manner which is material in the context of the Wider Direct Line Group taken
as a whole;
Certain events occurring since 31 December 2023
(i) except as Disclosed, no member of the Wider Direct
Line Group having since 31 December 2023:
(i) save as between Direct Line and its wholly-owned
subsidiaries or between such wholly-owned subsidiaries and save for the issue
of Direct Line Shares on the exercise of options and the vesting of awards
under the Direct Line Share Plans, issued or agreed to issue or authorised or
proposed or announced its intention to authorise or propose the issue, of
additional shares of any class, or securities or securities convertible into,
or exchangeable for, or rights, warrants or options to subscribe for or
acquire, any such shares, securities or convertible securities or transferred
or sold or agreed to transfer or sell or authorised or proposed the transfer
or sale of Direct Line Shares out of treasury;
(ii) other than the Direct Line Permitted Dividends (if
any), recommended, declared, paid or made or proposed or agreed to recommend,
declare, pay or make any bonus issue, dividend or other distribution (whether
payable in cash or otherwise) other than dividends (or other distributions
whether payable in cash or otherwise) lawfully paid or made by any
wholly-owned subsidiary of Direct Line to Direct Line or any of its
wholly-owned subsidiaries;
(iii) other than pursuant to the Acquisition (and except for
transactions between Direct Line and its wholly-owned subsidiaries or between
the wholly-owned subsidiaries of Direct Line and transactions in the ordinary
course of business) implemented, effected, authorised or proposed or announced
its intention to implement, effect, authorise or propose any merger, demerger,
reconstruction, amalgamation, scheme, commitment or offer or disposal of
assets or shares or loan capital (or the equivalent thereof) in any
undertaking or undertakings, in each case to an extent which is material in
the context of the Wider Direct Line Group taken as a whole;
(iv) except for transactions between Direct Line and its
wholly-owned subsidiaries or between the wholly-owned subsidiaries of Direct
Line and except for transactions in the ordinary course of business disposed
of, or transferred, mortgaged or created any security interest over any
material asset or any right, title or interest in any asset or authorised,
proposed or announced any intention to do so to an extent which, in each case,
is material in the context of the Wider Direct Line Group taken as a whole;
(v) except for transactions between Direct Line and its
wholly-owned subsidiaries or between the wholly-owned subsidiaries of Direct
Line issued, authorised, made or proposed or announced an intention to issue,
authorise or make any change in or to the terms of any debentures or loan
capital or become subject to any contingent liability or incurred or increased
any indebtedness to an extent which, in each case, is material in the context
of the Wider Direct Line Group taken as a whole;
(vi) entered into any licence or other disposal of
intellectual property rights of any member of the Wider Direct Line Group,
which are material in the context of the Wider Direct Line Group taken as a
whole and outside of the ordinary course of business;
(vii) entered into or varied or authorised, proposed or
announced its intention to enter into or vary any contract, arrangement,
agreement, transaction or commitment (whether in respect of capital
expenditure or otherwise) (otherwise than in the ordinary course of business)
which is of a long term, unusual or onerous nature or magnitude or which is or
which involves or could reasonably be expected to involve an obligation of a
nature or magnitude which in any such case, is material in the context of the
Direct Line Group, or which is or is reasonably expected to be materially
restrictive on the business of any member of the Wider Direct Line Group to an
extent which, in each case, is material in the context of the Wider Direct
Line Group taken as a whole;
(viii) entered into or varied or authorised, proposed or
announced its intention to enter into or vary the terms of, or made any offer
(which remains open for acceptance) to enter into or vary the terms of any
contract, service agreement, commitment or arrangement with any director or
senior executive of any member of the Wider Direct Line Group, except for
salary increases, bonuses or variations of terms in the ordinary course;
(ix) proposed, agreed to provide or modified the terms of
any share option scheme, incentive scheme or other benefit relating to the
employment or termination of employment of any employee of the Wider Direct
Line Group, which, taken as a whole, are material in the context of the Wider
Direct Line Group taken as a whole;
(x) purchased, redeemed or repaid or announced any
proposal to purchase, redeem or repay any of its own shares or other
securities or reduced or, except in respect of the matters mentioned in
sub-paragraph (i) above, made any other change to any part of its share
capital, to an extent which is material in the context of the Wider Direct
Line Group taken as a whole;
(xi) waived, compromised or settled any claim otherwise than
in the ordinary course of business which is material in the context of the
Wider Direct Line Group taken as a whole;
(xii) terminated or varied the terms of any agreement or
arrangement between any member of the Wider Direct Line Group and any other
person in a manner which would, or would reasonably be expected to, have a
material adverse effect on the financial position of the Wider Direct Line
Group taken as a whole;
(xiii) made any alteration to its memorandum or articles of
association or other incorporation documents (in each case, other than in
connection with the Acquisition);
(xiv) in relation to any pension scheme or other retirement,
leaving service or death benefit arrangement established for any directors,
former directors, employees or former employees of any entity in the Wider
Direct Line Group or their dependants and established by a member of the Wider
Direct Line Group (a "Relevant Pension Plan"), except in relation to changes
made or agreed as a result of, or arising from, changes to legislation, made
or agreed or consented to any change to:
(A) the terms of the trust deeds and rules constituting any
Relevant Pension Plan;
(B) the contributions payable to any Relevant Pension Plan
or to the benefits which accrue, or to the pensions which are payable,
thereunder;
(C) the basis on which qualification for, or accrual or
entitlement to, such benefits or pensions are calculated or determined; or
(D) the basis upon which the liabilities (including
pensions) of any Relevant Pension Plan are funded, valued, made, agreed or
consented to,
where to do so has, or is reasonably likely to, have a material impact on the
Wider Direct Line Group;
(xv) established or proposed the establishment of any Relevant
Pension Plan to the extent which is material in the context of the Wider
Direct Line Group taken as a whole, and other than as required in accordance
with applicable law;
(xvi) been unable, or admitted in writing that it is unable, to
pay its debts or commenced negotiations with one or more of its creditors with
a view to rescheduling or restructuring any of its indebtedness, or having
stopped or suspended (or threatened to stop or suspend) payment of its debts
generally or ceased or threatened to cease carrying on all or a substantial
part of its business which is material in the context of the Wider Direct Line
Group taken as a whole;
(xvii) (other than in respect of a member of the Wider Direct Line
Group which is dormant and was solvent at the relevant time) taken or proposed
any steps, corporate action or had any legal proceedings instituted or
threatened against it in relation to the suspension of payments, a moratorium
of any indebtedness, its winding-up (voluntary or otherwise), dissolution,
reorganisation or for the appointment of a receiver, administrator, manager,
administrative receiver, trustee or similar officer of all or any material
part of its assets or revenues or any analogous or equivalent steps or
proceedings in any jurisdiction or appointed any analogous person in any
jurisdiction or had any such person appointed;
(xviii) entered into or implemented any joint venture, asset or
profit sharing arrangement, partnership or merger of business or corporate
entities which is material in the context of the Wider Direct Line Group taken
as a whole;
(xix) taken (or agreed or proposed to take) any action which
requires, or would require, the consent of the Panel or the approval of Direct
Line Shareholders in general meeting in accordance with, or as contemplated
by, Rule 21.1 of the Takeover Code; or
(xx) entered into any agreement, arrangement, commitment or
contract or passed any resolution or made any offer (which remains open for
acceptance) with respect to or announced an intention to, or to propose to,
effect any of the transactions, matters or events referred to in this
Condition 3(i);
No adverse change, litigation, regulatory enquiry or similar
(j) except as Disclosed, since 31 December 2023 there
having been:
(i) no adverse change and no circumstance having arisen
which would be or would reasonably be expected to result in any material
adverse change in, the business, assets, value, financial or trading position
or profits or prospects or operational performance of any member of the Wider
Direct Line Group which is material in the context of the Wider Direct Line
Group taken as a whole or is material in the context of the Acquisition;
(ii) no litigation, arbitration proceedings, prosecution
or other legal proceedings to which any member of the Wider Direct Line Group
is or may become a party (whether as claimant, defendant or otherwise) having
been threatened, announced, instituted or remaining outstanding by, against or
in respect of, any member of the Wider Direct Line Group, in each case which
is or would be expected to be material in the context of the Wider Direct Line
Group taken as a whole or is material in the context of the Acquisition;
(iii) no enquiry, review or investigation by, or complaint
or reference to, any Third Party against or in respect of any member of the
Wider Direct Line Group having been threatened, announced or instituted or
remaining outstanding by, against or in respect of any member of the Wider
Direct Line Group, in each case which would reasonably be expected to have a
material adverse effect on the Wider Direct Line Group taken as a whole or is
material in the context of the Acquisition;
(iv) no contingent or other liability having arisen or
become apparent to Aviva or increased other than in the ordinary course of
business which is reasonably likely to affect adversely the business, assets,
financial or trading position or profits or prospects of any member of the
Wider Direct Line Group to an extent which is material in the context of the
Wider Direct Line Group taken as a whole;
(v) no steps having been taken and no omissions having
been made which are reasonably likely to result in the withdrawal,
cancellation, termination or modification of any licence held by any member of
the Wider Direct Line Group which is necessary for the proper carrying on of
its business and the withdrawal, cancellation, termination or modification of
which would reasonably be expected to have a material adverse effect on the
Wider Direct Line Group taken as a whole or is material in the context of the
Acquisition; and
(vi) no member of the Wider Direct Line Group having
conducted its business in breach of any applicable laws and regulations in
manner which is material in the context of the Wider Direct Line Group taken
as a whole;
No discovery of certain matters regarding information, liabilities and
environmental issues
(k) except as Disclosed, Aviva not having discovered that:
(i) any financial, business or other information
concerning the Wider Direct Line Group publicly announced before the date of
the Announcement or disclosed at any time to any member of the Wider Aviva
Group by or on behalf of any member of the Wider Direct Line Group before the
date of this Announcement is misleading, contains a misrepresentation of any
fact, or omits to state a fact necessary to make that information not
misleading, and which is, in any case, material in the context of the Wider
Direct Line Group taken as a whole or is material in the context of the
Acquisition;
(ii) any member of the Wider Direct Line Group or any
partnership, company or other entity in which any member of the Wider Direct
Line Group has a significant economic interest and which is not a subsidiary
undertaking of Direct Line is subject to any liability, contingent or
otherwise, which is material in the context of the Wider Direct Line Group
taken as a whole; or
(iii) any past or present member of the Wider Direct Line
Group has not complied with any applicable legislation, regulations or other
requirements of any jurisdiction or any Authorisations relating to the use,
treatment, storage, carriage, disposal, discharge, spillage, release, leak or
emission of any waste or hazardous substance or any substance likely to impair
the environment (including property) or harm human or animal health or
otherwise relating to environmental matters or the health and safety of
humans, which non-compliance would be likely to give rise to any material
liability including any penalty for non-compliance (whether actual or
contingent) on the part of any member of the Wider Direct Line Group, in each
case to an extent which is material in the context of the Wider Direct Line
Group taken as a whole;
Intellectual property
(l) except as Disclosed and since 31 December 2023, no
circumstance having arisen or event having occurred in relation to any
intellectual property owned or used by any member of the Wider Direct Line
Group which would have a material adverse effect on the Wider Direct Line
Group taken as a whole, including:
(i) any member of the Wider Direct Line Group losing its
title to any intellectual property used in its business, or any intellectual
property owned by any member of the Wider Direct Line Group and material to
its business being revoked, cancelled or declared invalid; or
(ii) any claim being asserted in writing or threatened in
writing by any person challenging the ownership of any member of the Wider
Direct Line Group to, or the validity or effectiveness of, any of its
intellectual property; or
(iii) any agreement regarding the use of any intellectual
property licensed to or by any member of the Wider Direct Line Group being
terminated or varied; and
Anti-corruption, sanctions and criminal property
(m) except as Disclosed, Aviva not having discovered:
(i) (i) any past or present member, director, officer or
employee of the Wider Direct Line Group, in connection with their position at
the Wider Direct Line Group, is or has at any time engaged in any activity,
practice or conduct (or omitted to take any action) which would constitute an
offence under the Bribery Act 2010, the US Foreign Corrupt Practices Act of
1977, as amended, or any other anti-corruption legislation applicable to the
Wider Direct Line Group or (ii) any past or present member of the Wider Direct
Line Group or any person that performs or has performed services for or on
behalf of the Wider Direct Line Group is or has at any time engaged in any
activity, practice or conduct in connection with the performance of such
services which would constitute an offence under the Bribery Act 2010, the US
Foreign Corrupt Practices Act of 1977, as amended, or any other applicable
anti-corruption legislation;
(ii) any asset of any member of the Wider Direct Line
Group constitutes criminal property as defined by section 340(3) of the
Proceeds of Crime Act 2002 (but disregarding paragraph (b) of that
definition);
(iii) any past or present member, director, officer or
employee of the Wider Direct Line Group or any other person for whom any such
person may be liable or responsible, has engaged in any business with, made
any investments in, made any funds or assets available to or received any
funds or assets from: (i) any government, entity or individual in respect of
which US, UK or European Union persons, or persons operating in those
territories, are prohibited from engaging in activities or doing business, or
from receiving or making available funds or economic resources, by applicable
US, UK or European Union laws or regulations, including the economic sanctions
administered by the United States Office of Foreign Assets Control or HM
Revenue & Customs; or (ii) any government, entity or individual targeted
by any of the economic sanctions of the United Nations, the United States, the
United Kingdom, the European Union or any of its member states or any other
governmental or supranational body or authority in any jurisdiction, except as
may have been licensed by the relevant authority; or
(iv) a member of the Wider Direct Line Group has engaged in
any transaction or conduct which would cause any member of the Wider Direct
Line Group or the Wider Aviva Group to be in breach of any applicable law or
regulation upon the completion of the Acquisition, including any economic
sanctions of the United States Office of Foreign Assets Control or HM Revenue
& Customs, or any government, entity or individual targeted by any of the
economic sanctions of the United Nations, the United States, the United
Kingdom or the European Union or any of its member states.
Part B: FURTHER TERMS OF THE Acquisition
1. The Conditions set out in paragraphs 2(a), 2(b) and
3(a) to 3(d) (inclusive) of Part A above must each be fulfilled, or (if
capable of waiver) be waived by Aviva prior to the commencement of the
Sanction Hearing, failing which the Scheme will lapse.
2. Notwithstanding the paragraph above, subject to the
requirements of the Panel and the Takeover Code, Aviva reserves the right in
its sole discretion to waive:
(a) the deadlines set out in paragraph 1 of Part A
above, and any of the deadlines set out in paragraphs 2(a)(ii), 2(b)(ii) and
2(c)(ii) of Part A above for the timing of the Court Meeting, the General
Meeting and/or the Sanction Hearing. If any such deadline is not met, Aviva
will make an announcement by 8.00 a.m. on the Business Day following such
deadline confirming whether it has invoked or waived the relevant Condition or
agreed with Direct Line to extend the deadline in relation to the relevant
Condition. For the avoidance of doubt, the Conditions set out in paragraphs
2(a)(i), 2(b)(i), and 2(c)(i) of Part A above cannot be waived; and
(b) in whole or in part, all or any of the above
Conditions set out in paragraphs 3(a) to (m) (inclusive) of Part A above.
3. Aviva shall be under no obligation to waive or
treat as satisfied any of the Conditions that it is entitled (with the consent
of the Panel and subject to the requirements of the Takeover Code) to waive,
by a date earlier than the latest date specified above for the fulfilment or
waiver thereof, notwithstanding that the other Conditions may at such earlier
date have been waived or fulfilled and that there are at such earlier date no
circumstances indicating that any of such Conditions may not be capable of
fulfilment.
4. If Aviva is required by the Panel to make an offer
for Direct Line Shares under the provisions of Rule 9 of the Takeover Code,
Aviva may make such alterations to any of the above Conditions and terms of
the Acquisition as are necessary to comply with the provisions of Rule 9.
5. Under Rule 13.5(a) of the Takeover Code and subject
to paragraph 6, Aviva may only invoke a Condition that is subject to Rule
13.5(a) of the Takeover Code so as to cause the Acquisition not to proceed, to
lapse or to be withdrawn with the consent of the Panel and any Condition that
is subject to Rule 13.5(a) of the Takeover Code may be waived by Aviva. The
Panel will normally only give its consent if the circumstances which give rise
to the right to invoke the Condition are of material significance to Aviva in
the context of the Acquisition. This will be judged by reference to the facts
of each case at the time that the relevant circumstances arise.
6. Conditions 1, 2(a), 2(b), 2(c) and 3(d) of Part A
above and, if applicable, any acceptance condition if the Acquisition is
implemented by means of a Takeover Offer, are not subject to Rule 13.5(a) of
the Takeover Code.
7. The Direct Line Shares to be acquired under the
Acquisition will be acquired with full title guarantee, fully paid and free
from all liens, equities, charges, encumbrances, options, rights of
pre-emption and any other third party rights and interests of any nature and
together with all rights now or hereafter attaching or accruing to them,
including, without limitation, voting rights and the right to receive and
retain in full all dividends and other distributions and any return of capital
(whether by reduction of share capital or share premium account or otherwise)
declared, made, paid or becoming payable by reference to a record date falling
on or after the Effective Date and any dividend, distribution or return of
capital in respect of which a corresponding reduction in the consideration
payable under the terms of the Acquisition has been made as described in
paragraph 8 below.
8. Subject to the terms of the Acquisition, if, on or
after the date of this Announcement and on or prior to the Effective Date, any
dividend and/or other distribution and/or return of capital is authorised,
declared, made or paid or becomes payable in respect of Direct Line Shares
other than the Direct Line Permitted Dividends, Aviva reserves the right to
reduce the cash portion of the Offer Consideration payable under the terms of
the Acquisition by an amount equal to all or part of any such dividend and/or
other distribution and/or return of capital, in which case: (a) any reference
in this Announcement or in the Scheme Document to the Offer Consideration for
the Direct Line Shares will be deemed to be a reference to the Offer
Consideration as so reduced; and (b) the relevant Direct Line Shareholders
will be entitled to receive and retain any such dividend and/or other
distribution and/or return of capital authorised, declared, made or paid. To
the extent that any such dividend, distribution or return of capital is
authorised, declared, made or paid or becomes payable: (x) pursuant to the
Acquisition on a basis which entitles Aviva to receive the dividend or
distribution or return of capital and to retain it; or (y) is subsequently
cancelled, the Offer Consideration will not be subject to change in accordance
with this paragraph. Any exercise by Aviva of its rights referred to in this
paragraph shall be the subject of an announcement and, for the avoidance of
doubt, shall not be regarded as constituting any revision or variation of the
Acquisition.
9. Aviva reserves the right to elect (with the consent
of the Panel (where necessary) and subject to the terms of the Co-operation
Agreement) to implement the Acquisition by way of a Takeover Offer as an
alternative to the Scheme. In such event, the offer will be implemented on
substantially the same terms subject to appropriate amendments, including
(without limitation) an acceptance condition set at 75 per cent. (or such
lesser percentage as Aviva may decide after, to the extent necessary,
consultation with the Panel, being in any case more than 50 per cent. of the
Direct Line Shares), so far as applicable, as those which would apply to the
Scheme. Further, if sufficient acceptances of such Takeover Offer are received
and/or sufficient Direct Line Shares are otherwise acquired, it is the
intention of Aviva to apply the provisions of the Companies Act to acquire
compulsorily any outstanding Direct Line Shares to which such Takeover Offer
relates.
10. The availability of the Acquisition to persons not
resident in the United Kingdom may be affected by the laws of the relevant
jurisdictions. Persons who are not resident in the United Kingdom should
inform themselves about and observe any applicable legal and regulatory
requirements.
11. The Acquisition is not being made, directly or
indirectly, in, into or from, or by use of the mails of, or by any means of
instrumentality (including, but not limited to, facsimile, e-mail or other
electronic transmission, telex or telephone) of interstate or foreign commerce
of, or of any facility of a national, state or other securities exchange of,
any Restricted Jurisdiction.
12. The Scheme will be governed by English law and is
subject to the jurisdiction of the Court and to the Conditions and further
terms set out in this Appendix 1 to this Announcement, and to the full terms
and Conditions to be set out in the Scheme Document. The Acquisition will be
subject to the applicable requirements of the Takeover Code, the Panel, the
London Stock Exchange and the FCA.
13. Each of the Conditions will be regarded as a separate
Condition and will not be limited by reference to any other Condition.
Appendix 2
SOURCES AND BASES OF INFORMATION
Unless otherwise stated in this Announcement:
1. all references to Direct Line Shares are to Direct
Line ordinary shares of 10 (10 )⁄ (11) pence each;
2. references to the entire diluted issued share
capital of 1,331,723,248 Direct Line Shares have been calculated based on:
(a) 1,311,388,157 Direct Line Shares in issue as at the Latest
Practicable Date, plus
(b) a maximum of 29,730,719 Direct Line Shares which may be issued on the
exercise of options and vesting of awards on or after the date of this
Announcement under the Direct Line Share Plans as at the Latest Practicable
Date, less
(c) 9,395,628 Direct Line Shares held by the employee benefit trust
operated by Direct Line that can be used to satisfy the exercise of options
and vesting of awards under the Direct Line Share Plans as at the Latest
Practicable Date;
3. the value of the Acquisition based on the Offer
Consideration of 0.2867 New Aviva Shares, 129.7 pence in cash, and up to 5
pence (in aggregate) in dividends to be paid (subject to the approval of the
Direct Line Board) prior to Completion is calculated on the basis of the
issued and to be issued entire diluted issued share capital of Direct Line (as
set out in paragraph 2 above);
4. the enlarged share capital of Aviva immediately
following Completion has been calculated as the sum of:
(a) the share capital of Aviva of 2,677,646,728 Aviva Shares as at the
Latest Practicable Date, plus
(b) up to 381,805,055 Aviva Shares, which may be issued under the terms of
the Acquisition (calculated as the entire diluted issued share capital of
Direct Line as set out in paragraph 2 above multiplied by the Exchange Ratio
of 0.2867 New Aviva Shares in exchange for each Direct Line share);
The total number of Aviva shares following Completion will therefore be up to
3,059,451,783 (excluding any new awards granted by Direct Line between the
date of this Announcement and Completion);
5. the percentage ownership of the Combined Group
which would be held by Aviva Shareholders and Direct Line Shareholders
respectively if the Acquisition completes are based on the entire diluted
share capital of Direct Line as set out in paragraph 2 and the current share
capital of Aviva as set out in paragraphs 4(a);
6. unless stated otherwise, all prices quoted for
Direct Line Shares are Closing Prices and are derived from Bloomberg;
7. volume weighted average prices are derived from
Bloomberg;
8. certain figures included in this Announcement have
been subject to rounding adjustments; and
9. unless otherwise stated, the financial information
relating to Aviva and Direct Line are extracted from the annual and interim
accounts of Aviva and Direct Line respectively for the relevant years.
Appendix 3
DETAILS OF IRREVOCABLE UNDERTAKINGS
1. Direct Line Directors
The following Direct Line Directors have given irrevocable undertakings in
respect of the following Direct Line Shares beneficially held by them (or
their immediate family) to vote (or procure the voting) in favour of the
Scheme at the Court Meeting and the Direct Line Resolution(s) at the General
Meeting (or, if the Acquisition is implemented by means of a Takeover Offer,
to accept or procure the acceptance of the Takeover Offer):
Name Number of Direct Line Shares Percentage of Direct Line existing issued ordinary share capital
Adam Winslow 517,022 0.04 per cent.
Jane Poole* 0 0.00 per cent.
Carol Hagh 10,000 0.00 per cent.
Danuta Gray 26,500 0.00 per cent.
Gregor Stewart 2,925 0.00 per cent.
* Jane Poole does not hold any Direct Line Shares but has given an irrevocable
undertaking in respect of her awards and options held under the Direct Line
Share Plans.
These irrevocable undertakings also extend to any Direct Line Shares acquired
by the Direct Line Directors as a result of the vesting of awards or the
exercise of options under the Direct Line Share Plans, other than any Direct
Line Shares acquired under the Direct Line Group Share Incentive Plan.
The obligations of the Direct Line Directors under these irrevocable
undertakings remain binding in the event a higher competing offer is made for
Direct Line and will cease to be binding on the earlier of the following
occurrences:
· if Aviva announces its election to implement the
Acquisition by way of a Takeover Offer, and the formal document containing the
Takeover Offer is not published within 28 days (or such longer period as the
Panel may agree) after the date of the announcement of such election unless,
on or before that date (as extended, if applicable), Aviva announces its
election to implement the Acquisition by way of a Scheme or otherwise;
· the Scheme or Takeover Offer lapses or is withdrawn in
accordance with its terms and Aviva publicly confirms that it does not intend
to proceed with the Acquisition or to implement the Acquisition by way of a
Takeover Offer or Scheme or otherwise;
· Aviva announces, with the consent of the Panel, that it
does not intend to make or proceed with the Acquisition and no new, revised or
replacement offer or scheme is announced in accordance with Rule 2.7 of the
Takeover Code at the same time;
· the Scheme has not become effective by the Long Stop
Date; or
· any competing offer for Direct Line is declared
unconditional or, if proceeding by way of a scheme of arrangement, becomes
effective.
Appendix 4
risk factors
As the Acquisition constitutes a "significant transaction" for Aviva for the
purposes of the Listing Rules, Aviva is required to describe any risks
associated with the Acquisition which are summarised below.
The Acquisition is subject to the Conditions which may not be satisfied or
waived
Completion of the Acquisition is subject to the Conditions being satisfied
(or, if permitted, waived). A summary of the principal Conditions to which the
Acquisition is subject is set out at paragraph 17 above and the Conditions are
set out in full in Appendix 1 to this Announcement. The Conditions must be
satisfied, or where permitted, waived, by the Long Stop Date (subject to the
Takeover Code). However, the Acquisition is currently expected to complete in
mid-2025.
There is no guarantee that the Conditions will be satisfied in the necessary
time frame (or waived, if applicable). The applicable regulatory authorities
have discretion in imposing conditions in granting their consent, which could
result in a delay in Completion of, or a decision not to complete, the
Acquisition. Failure to satisfy (or, where permitted, waive) these Conditions
may result in the Acquisition not being completed.
Delay in completing the Acquisition will prolong the period of uncertainty for
the Aviva Group and the Direct Line Group and both delay and failure to
complete the Acquisition may result in the accrual of additional costs to
their respective businesses without any of the potential benefits of the
Acquisition having been achieved.
Aviva's ability to invoke a Condition (other than the Conditions set out in
paragraphs 1, 2(a), 2(b), 2(c) and 3(d) of Part A of Appendix 1 to this
Announcement) to either lapse its offer or to delay completion of the
Acquisition is subject to the Panel's consent. In granting its consent, the
Panel would need to be satisfied that the underlying circumstances are of
"material significance" to Aviva in the context of the Acquisition and this is
a high threshold to fulfil. Consequently, there is a significant risk that
Aviva may be required to complete the Acquisition even where certain
Conditions have not been satisfied or where a material adverse change has
occurred to the Direct Line Group. If any of the events described above were
to occur, they may result in additional costs and/or the delay or the failure
(partial or otherwise) to realise the financial benefits and synergies
relating to the Acquisition identified by the parties or may otherwise impact
Aviva's strategy and operations.
The Combined Group's success will be dependent upon its ability to integrate
the Direct Line Group and deliver the value of the combined underlying
businesses; the financial benefits and synergies expected from the Acquisition
may not be fully achieved.
The Combined Group's future prospects will, in part, be dependent upon the
Combined Group's ability to integrate the Direct Line Group successfully,
without disruption to the existing business.
The integration process following Completion may be more complex than
anticipated. Successful integration will require a significant amount of
management time and may affect the ability of the management team of the
Combined Group to run the business effectively during the period of
integration and to execute the Aviva Group's existing strategic priorities. If
the integration process proves more difficult than is being anticipated, there
is a risk to the operational performance of the Combined Group.
The Combined Group will face various challenges when integrating the Direct
Line Group into the Aviva Group, including, among others, harmonising ways of
working and integration of employee groups, standardising policies and
procedures, processes and systems, aligning shared values, integrating brands
and legal entities and retention of key employees of the Combined Group. If
the Combined Group does not properly manage these challenges, they may affect
the effective running of the business in the ordinary course and the efficient
allocation, including redeployment, of resources in the Combined Group, and
could impair the ability of the Combined Group to properly execute the
integration of the Direct Line Group.
Whilst the Aviva Directors believe that the Acquisition will achieve material
cost and capital synergies, and that these have been reasonably estimated,
unanticipated events, liabilities, tax impacts or unknown pre-existing issues
may arise or become apparent (whether as a result of a decision or action
taken by a regulator with jurisdiction over the Combined Group's business or
otherwise) which could result in the costs of integration being higher and the
realisable benefits/synergies being lower than expected, resulting in a
material adverse effect on the business, results of operations, financial
condition and/or prospects of the Combined Group and the market price of the
Aviva Shares. No assurance can be given that the integration process will
deliver all or substantially all of the expected benefits within the assumed
time frame.
The prospect of Completion could disrupt the businesses of the Aviva Group
and/or the Direct Line Group, which could have material adverse effects on the
business, financial condition, results of operations and prospects of the
Aviva Group, Direct Line Group or the Combined Group and the market price of
the Aviva Shares.
The prospect of Completion could disrupt the businesses of the Aviva Group and
the Direct Line Group. For example, current and prospective customers may, in
response to the announcement of the Acquisition, terminate, change or defer
their custom, which could materially and adversely affect the revenues and
profits of the Aviva Group or the Direct Line Group and/or any anticipated
growth in revenues. Furthermore, some current and prospective employees of the
Direct Line Group or the Aviva Group may experience uncertainty about their
future roles within the Combined Group, which may adversely affect the Direct
Line Group's and the Aviva Group's abilities to retain or recruit key managers
and other employees. Also, market reaction to and/or speculation regarding the
likelihood of Completion could increase the volatility of the price of Aviva
Shares.
If the Aviva Group and/or the Direct Line Group fail to manage these risks
effectively, the business and financial results of the Aviva Group, the Direct
Line Group and/or the Combined Group could be adversely affected. In addition,
the Aviva Group may incur higher than expected transaction and integration
related costs.
Appendix 5
QUANTIFIED FINANCIAL BENEFITS STATEMENT
Part A - QUANTIfiED FINANCIAL BENEFITS STATEMENT
Paragraph 5 of this Announcement (Potential synergies and integration
planning) includes statements of estimated cost savings and synergies expected
to arise from the Acquisition (together, the "Quantified Financial Benefits
Statement"). As identified in paragraph 5 of this Announcement, finalisation
of the integration plan will be subject to engagement with appropriate
stakeholders, including employee representative bodies and unions.
A copy of the Quantified Financial Benefits Statement is set out below:
The Aviva Directors, having reviewed and analysed the potential synergies of
the Acquisition, based on their knowledge of Direct Line's business and the UK
General Insurance market, and taking into account the factors they can
influence, believe that the Acquisition can generate annual run-rate pre-tax
cost synergies of at least £125 million by the end of the third year
post-Completion, with the synergies expected to be delivered broadly equally
in each of the three years post-Completion. These anticipated recurring
synergies would be incremental to Direct Line's previously announced cost
savings target of £100 million per annum.
The potential sources of quantified synergies are currently envisaged to
include:
· approximately 50 per cent. derived from the reduction of
overlapping roles in a number of shared service, head office and senior
management functions, as well as rationalisation of related external costs;
· approximately 30 per cent. derived from the reduction of
overlapping roles across the combined insurance operations and increased
efficiency resulting from the Combined Group's greater scale; and
· approximately 20 per cent. derived from the integration of
duplicative back and middle-office IT platforms, as well as rationalisation of
supporting teams.
The integration of the businesses will involve combining the Direct Line
business and group functions into the Aviva UK Personal Lines business. It is
intended that Direct Line's core brands will be maintained, including Direct
Line, Churchill and Green Flag.
It is envisaged that the realisation of the potential quantified synergies
will result in one-off integration costs of approximately £250 million (in
aggregate) and approximately 75 per cent. of these are expected to be incurred
in years 1 and 2 post-Completion. Aside from these one-off integration costs,
no material dis-synergies are expected in connection with the Acquisition. The
identified synergies will accrue as a direct result of the Acquisition and
would not be achieved on a standalone basis.
Further information on the bases of belief supporting the Quantified Financial
Benefits Statement, including the principal assumptions and sources of
information, is set out below.
Bases of Belief
Following initial discussions regarding the Acquisition in November 2024, a
synergy development team was established to evaluate and assess the potential
synergies available from the Acquisition and the integration and to undertake
an initial planning exercise. The team worked in conjunction with Direct Line
management on development of the cost synergy plan.
The team, which comprises senior Aviva commercial and financial personnel, has
worked collaboratively to identify, challenge and quantify potential synergies
as well as estimate any associated costs to achieve such synergies. The team
has engaged with the relevant functional heads and other personnel within the
Aviva Group to provide input into the development process and to test synergy
assumptions and to agree on the nature and quantum of the identified synergy
initiatives.
In preparing the Quantified Financial Benefits Statement, both Aviva and
Direct Line have shared certain operating and financial information to
facilitate the analysis in support of evaluating the potential synergies
available from the Acquisition. However, as is typical of these exercises,
confidentiality and regulatory considerations have limited the extent of the
sharing of data and information. Where data has been limited for commercial or
other reasons, the team has made estimates and assumptions to aid its
development of individual synergy initiatives. The assessment and
quantification of the potential synergies have, in turn, been informed by the
Aviva management's teams industry experience and knowledge of the existing
businesses.
In general, the synergy assumptions have been risk adjusted, exercising a
degree of prudence in the calculation of the estimated synergy benefits set
out above.
In arriving at the Quantified Financial Benefits Statements, the Aviva
Directors have assumed:
· no material change to current prevailing global macroeconomic and
political conditions in the markets in which Aviva and Direct Line operate;
· no significant impact on the underlying operations of either
business as a result of the Acquisition;
· no material impact on either Aviva or Direct Line's respective
businesses as a result of legislative or regulatory matters;
· no material change in accounting standards applied by either
business; and
· no material acquisitions or divestments made by either business.
The baselines used for the quantified cost synergies were:
· For Aviva: Aviva's UK General Insurance operating expenses for
the financial year ended 31 December 2023; and
· For Direct Line: Direct Line's operating expenses for the
financial year ended 31 December 2023, adjusted for previously announced cost
saving initiatives.
Reports
As required by Rule 28.1(a) of the Takeover Code, PwC, as reporting
accountants to Aviva, have provided a report stating that, in their opinion,
the Quantified Financial Benefits Statement has been properly compiled on the
basis stated. In addition Citi and Goldman Sachs International, as joint
financial advisers to Aviva, have each provided a report stating that, in
their view, the Quantified Financial Benefits Statement has been prepared with
due care and consideration. Copies of these reports are included at Parts B
and C of this Appendix 5. Each of PwC, Goldman Sachs International and Citi
has given and not withdrawn its consent to the publication of its report in
this Announcement in the form and context in which it is included pursuant to
Rule 23.2 of the Takeover Code.
Notes
These statements are not intended as a profit forecast and should not be
interpreted as such. These statements of estimated cost savings and synergies
relate to future actions and circumstances which, by their nature, involve
risks, uncertainties and contingencies. As a result, the cost savings and
synergies referred to may not be achieved, or may be achieved later or sooner
than estimated, or those achieved could be materially different from those
estimated. Neither the Quantified Financial Benefits Statement nor any other
statement in this Announcement (other than the 2026 Profit Forecast) should be
construed as a profit forecast or interpreted to mean that the Combined
Group's earnings in the first full year following implementation of the
Acquisition, or in any subsequent period, would necessarily match or be
greater than or be less than those of Aviva or Direct Line for the relevant
preceding financial period or any other period.
Due to the scale of the Combined Group, there may be additional changes to the
Combined Group's operations. As a result, and given the fact that the changes
relate to the future, the resulting cost savings may be materially greater or
less than those estimated.
Part B - report from PwC
The directors (the "Directors")
Aviva plc
80 Fenchurch Street
London
EC3M 4AE
Citigroup Global Markets Limited ("Citi")
Citigroup Centre
Canada Square
Canary Wharf
London
E14 5LB
Goldman Sachs International ("Goldman Sachs")
Plumtree Court
25 Shoe Lane
London
EC4A 4AU
(Citi and Goldman Sachs together are the "Financial Advisers")
23 December 2024
Dear Ladies and Gentleman
Report on Quantified Financial Benefits Statement by Aviva plc (the "Company")
We report on the quantified financial benefits statement (the "Statement") by
the Directors included in Part A of Appendix 5 of the announcement dated 23
December 2024 (the "Announcement") to the effect that:
"The Aviva Directors, having reviewed and analysed the potential synergies of
the Acquisition, based on their knowledge of Direct Line's business and the UK
General Insurance market, and taking into account the factors they can
influence, believe that the Acquisition can generate annual run-rate pre-tax
cost synergies of at least £125 million by the end of the third year
post-Completion, with the synergies expected to be delivered broadly equally
in each of the three years post-Completion. These anticipated recurring
synergies would be incremental to Direct Line's previously announced cost
savings target of £100 million per annum.
The potential sources of quantified synergies are currently envisaged to
include:
· approximately 50 per cent. derived from the reduction of
overlapping roles in a number of shared services, head office and senior
management functions, as well as rationalisation of related external costs;
· approximately 30 per cent. derived from the reduction of
overlapping roles across the combined insurance operations and increased
efficiency resulting from the Combined Group's greater scale; and
· approximately 20 per cent. derived from the integration of
duplicative back and middle-office IT platforms, as well as rationalisation of
supporting teams.
The integration of the businesses will involve combining the Direct Line
business and group functions into the Aviva UK Personal Lines business. It is
intended that Direct Line's core brands will be maintained, including Direct
Line, Churchill and Green Flag.
It is envisaged that the realisation of the potential quantified synergies
will result in one-off integration costs of approximately £250 million (in
aggregate) and approximately 75 per cent. of these are expected to be incurred
in years 1 and 2 post-Completion. Aside from these one-off integration costs,
no material dis-synergies are expected in connection with the Acquisition. The
identified synergies will accrue as a direct result of the Acquisition and
would not be achieved on a standalone basis."
This report is required by Rule 28.1(a)(i) of the City Code on Takeovers and
Mergers (the "Takeover Code") and is given for the purpose of complying with
that requirement and for no other purpose.
Opinion
In our opinion, the Statement has been properly compiled on the basis stated.
The Statement has been made in the context of the disclosures in Part A of
Appendix 5 of the Announcement setting out the basis of the Directors' belief
(including the principal assumptions and sources of information) supporting
the Statement and their analysis and explanation of the underlying constituent
elements.
Responsibilities
It is the responsibility of the Directors to prepare the Statement in
accordance with the requirements of Rule 28 of the Takeover Code.
It is our responsibility to form our opinion, as required by Rule 28.1(a)(i)
of the Takeover Code, as to whether the Statement has been properly compiled
on the basis stated and to report that opinion to you.
Save for any responsibility which we may have to those persons to whom this
report is expressly addressed or to the shareholders of the Company as a
result of the inclusion of this report in the Announcement, and for any
responsibility arising under Rule 28.1(a)(i) of the Takeover Code to any
person as and to the extent therein provided, to the fullest extent permitted
by law we do not assume any responsibility and will not accept any liability
to any other person for any loss suffered by any such other person as a result
of, arising out of, or in connection with this report or our statement,
required by and given solely for the purposes of complying with Rule 23.2 of
the Takeover Code, consenting to its inclusion in the Announcement.
Basis of preparation of the Statement
The Statement has been prepared on the basis stated in Part A of Appendix 5 to
the Announcement.
Basis of opinion
We conducted our work in accordance with the Standards for Investment
Reporting issued by the Financial Reporting Council ("FRC") in the United
Kingdom. We are independent in accordance with the Revised Ethical Standard
2019 issued by the FRC as applied to Investment Circular Reporting
Engagements, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We have discussed the Statement, together with the underlying plans (relevant
bases of belief/including sources of information and assumptions), with the
Directors and the Financial Advisers. Our work did not involve any independent
examination of any of the financial or other information underlying the
Statement.
We planned and performed our work so as to obtain the information and
explanations we considered necessary in order to provide us with reasonable
assurance that the Statement has been properly compiled on the basis stated.
We do not express any opinion as to the achievability of the benefits
identified by the Directors in the Statement.
Since the Statement and the assumptions on which it is based relate to the
future and may therefore be affected by unforeseen events, we express no
opinion as to whether the actual benefits achieved will correspond to those
anticipated in the Statement and the differences may be material.
Yours faithfully
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP is a limited liability partnership registered in
England with registered number OC303525. The registered office of
PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH.
PricewaterhouseCoopers LLP is authorised and regulated by the Financial
Conduct Authority for designated investment business.
Part C- report from GOLDMAN SACHS International AND CITI
The Directors
Aviva Plc
80 Fenchurch Street
London
United Kingdom
EC3M 4AE
23 December 2024
Dear Sirs,
Offer for Direct Line Insurance Group plc ("Direct Line")
We refer to the statement regarding the quantified financial benefits, the
bases of belief thereof and the notes thereto (together the "Statement") made
by Aviva Plc ("Aviva") set out in Part A of Appendix 5 of this Announcement,
for which the Directors of Aviva (the "Directors") are solely responsible
under Rule 28.3 of the City Code on Takeovers and Mergers (the "Code").
We have discussed the Statement, (including the assumptions, bases of
calculation and sources of information referred to therein), with the
Directors and those officers and employees of Aviva and its subsidiaries who
developed the underlying plans, as well as with PricewaterhouseCoopers LLP.
The Statement is subject to uncertainty as described in this Announcement and
our work did not involve any independent examination of any of the financial
or other information underlying the Statement.
We have relied upon the accuracy and completeness of all the financial and
other information provided to us by, or on behalf of, Aviva, or otherwise
discussed with or reviewed by us, and we have assumed such accuracy and
completeness for the purposes of providing this letter.
We do not express any opinion as to the achievability of the quantified
financial benefits identified by Aviva.
In giving the confirmation set out in this letter, we have reviewed the work
carried out by PricewaterhouseCoopers LLP and have discussed with them the
conclusions and the bases of calculation set out in Part B of Appendix 5 of
this Announcement.
This letter is provided to you solely in connection with Rule 28.1(a)(ii) of
the Code, and for no other purpose. We accept no responsibility to Direct Line
or its or Aviva's shareholders or any other person, other than the Directors
of Aviva, in respect of, arising out of, or in connection with, this letter.
No person other than the Directors of Aviva can rely on the contents of this
letter, and to the fullest extent permitted by law, we exclude all liability
(whether in contract, tort or otherwise) to any other person, in respect of
this letter, its content or the work undertaken in connection with this letter
or any of the results that can be derived from this letter or any written or
oral information provided in connection with this letter, and any such
liability is expressly disclaimed except to the extent that such liability
cannot be excluded by law.
On the basis of the foregoing, we consider that the Statement, for which you
as Directors are solely responsible, has been prepared with due care and
consideration.
Yours faithfully,
Citigroup Global Markets Limited
Goldman Sachs International
Appendix 6
PROFIT FORECAST
On 7 March 2024, Aviva released its full-year results and accompanying
presentation for the 12 months ended 31 December 2023. Included within these
results was the following statement, which for the purposes of Rule 28 of the
Takeover Code constitutes an ordinary course profit forecast for the period up
to 31 December 2026 (the "Aviva 2026 Profit Forecast"):
· Group operating profit: £2 billion by 2026*
The Aviva Directors confirm that, as at the date of this Announcement, the
Aviva 2026 Profit Forecast remains valid and has been properly compiled on the
basis of the principal assumptions stated below and that the basis of
accounting used is consistent with Aviva's accounting policies as set out
below.
Basis of preparation
The Aviva 2026 Profit Forecast is based on the Aviva Group's current internal
forecast for the period up to 31 December 2026, using economic assumptions as
at 31 October 2024. The basis of accounting used for the Aviva 2026 Profit
Forecast is consistent with the Aviva Group's existing accounting policies,
which: (i) are in accordance with UK adopted International Accounting
Standards; (ii) were applied in the preparation of the Aviva Group's financial
statements for the year ending 31 December 2023; and (iii) are expected to be
applied in the preparation of the Aviva Group's financial statements for the
period up to 31 December 2026. The Aviva 2026 Profit Forecast has been
prepared on the basis referred to above and subject to the principal
assumptions set out below. The Aviva 2026 Profit Forecast is inherently
uncertain and there can be no guarantee that any of the factors referred to
under "Principal Assumptions" below will not occur and/or, if they do, their
effect on the Aviva Group's results of operations, financial condition, or
financial performance, may be material. The Aviva 2026 Profit Forecast should
therefore be read in this context and construed accordingly.
Principal Assumptions
Factors outside the influence or control of the Aviva Directors for the period
up to 31 December 2026:
· no material change to current prevailing global macroeconomic and
political conditions in the markets and regions in which the Aviva Group
operates or intends to operate;
· no change in general sentiment towards the Aviva Group and/or its
operations which has an impact on its ability to attract customers and to
operate its business;
· no business disruption affecting the Aviva Group, its customers
or other stakeholders (including, but without limitation, any pandemic-related
lockdowns and restrictions or similar, natural disasters, acts of terrorism,
cyberattacks, workforce shortage or labour disputes);
· no material movements in UK interest rate, economic growth (GDP)
or inflation expectations compared with the Aviva Group's estimates;
· no material deviation in weather-related and large loss
experience within the Aviva Group's General Insurance businesses compared to
the long-term averages assumed in the Aviva Group's estimates;
· no material change in reinsurance terms available in the market
at the time of renewal compared to those assumed in the forecast;
· no change in legislation, taxation or regulatory environment
relating to the Aviva Group or which may impact demand for the Aviva Group's
products and propositions amongst both existing and prospective customers;
· no material change in the Aviva Group's existing debt
arrangements, except for those already reflected in the forecast, or its
ability to access external financing; and
· no litigation or contractual disputes which are material in the
context of the Aviva Group.
Factors within the influence or control of the Aviva Directors for the period
up to 31 December 2026:
· no material acquisitions, disposals, distribution partnerships,
joint ventures or other commercial agreements, other than those already
assumed within the forecast;
· no material changes in the Aviva Group's accounting policies
and/or the application thereof; and
· no material changes in key management or strategy of the Aviva
Group.
2024 and 2025
Under Rule 28.2(b) of the Takeover Code, Aviva is required to provide a
corresponding profit forecast for the current financial year and each
intervening financial year. The Panel has provided its consent to Aviva
addressing these requirements as follows:
· for the current financial year (being the financial year ending
31 December 2024): by way of Aviva's audited financial results, due to be
announced on 27 February 2025, being published at least 7 days prior to the
Court Meeting and General Meeting; and
· for the financial year ending 31 December 2025: by way of a
corresponding profit forecast to be provided in the Scheme Document (the
"Aviva 2025 Profit Forecast").
* Reference to operating profit represents Group adjusted operating profit
which is a non-GAAP Alternative Performance Measure ("APM") and is not bound
by the requirements of IFRS. Various items excluded from Aviva Group adjusted
operating profit, but included in IFRS profit before tax, are a) investment
variances and economic assumption changes, b) impairment, amortisation and
profit or loss on disposal, c) integration and restructuring costs and d)
other items. Further details of the measure are included in the 'Other
information' section of the Aviva FY2023 ARA.
Appendix 7
DEFINITIONS
The following definitions apply throughout this Announcement unless the
context requires otherwise:
"Acquisition" the recommended Acquisition by Aviva of the entire issued and to be issued
ordinary share capital of Direct Line not already owned or controlled by the
Aviva Group on the terms and subject to the conditions set out in this
Announcement, to be implemented by means of the Scheme (or by way of a
Takeover Offer, where Aviva so elects under certain circumstances described in
this Announcement) and, where the context requires, any subsequent revision,
variation, extension or renewal thereof;
"Admission" the admission of the New Aviva Shares by the FCA to the Official List and to
trading on the London Stock Exchange's main market for listed securities;
"Announcement" this announcement;
"Authorisations" regulatory authorisations, orders, determinations, recognitions, grants,
consents, clearances, confirmations, certificates, licences, permissions,
exemptions or approvals;
"Aviva" Aviva plc, a public limited company incorporated under the laws of England and
Wales with registered number 02468686;
"Aviva 2025 Profit Forecast" has the meaning given in Appendix 6;
"Aviva 2026 Profit Forecast" has the meaning given in Appendix 6;
" Aviva Directors" or "Aviva Board" the directors of Aviva;
"Aviva Dividend Policy" means the dividend policy announced by Aviva alongside its FY23 results on 7
March 2024;
"Aviva FY2023 ARA" the annual report and accounts of Aviva for FY2023;
"Aviva Group" Aviva and its subsidiary undertakings and where the context permits, each of
them;
"Aviva Shareholders" the holders of Aviva Shares
"Aviva Shares" the existing ordinary shares of 32 (17)/(19) pence each in the capital of
Aviva;
"Business Day" a day (other than Saturdays, Sundays and public holidays in the UK) on which
banks are open for business in the City of London;
"Citi" Citigroup Global Markets Limited
"Clean Team Agreement" the clean team agreement between Aviva and Direct Line dated 12 December 2024;
"Closing Price" the closing middle market price of a Direct Line Share or Aviva Share (as
applicable) on a particular trading day as derived from Bloomberg;
"CMA" the Competition and Markets Authority;
"Combined Group" the enlarged group following Completion comprising the Aviva Group and the
Direct Line Group;
"Companies Act" the Companies Act 2006 (as amended from time to time);
"Completion" the Acquisition becoming Effective in accordance with its terms
"Conditions" the conditions to the implementation of the Acquisition, as set out in Part A
of Appendix 1 to this Announcement and to be set out in the Scheme Document;
"Confidentiality Agreement" the confidentiality agreement between Aviva and Direct Line dated 8 December
2024;
"Co-operation Agreement" the agreement dated the date of this Announcement between Aviva and Direct
Line relating to, among other things, the implementation of the Acquisition;
"Court" the High Court of Justice in England and Wales;
"Court Meeting" the meeting of Scheme Shareholders to be convened pursuant to an order of the
Court under Part 26 of the Companies Act for the purpose of considering and,
if thought fit, approving the Scheme, including any adjournment thereof;
"Court Order" the order of the Court sanctioning the Scheme under Part 26 of the Companies
Act;
"CREST" the system for the paperless settlement of trades in securities and the
holding of uncertificated securities operated by Euroclear;
"Direct Line" Direct Line Insurance Group plc, a public limited company incorporated in
England and Wales with registered number 02280426;
"Direct Line Articles" the articles of association of Direct Line in force from time to time;
"Direct Line Buyout Awards" options or awards granted over Direct Line Shares to Direct Line employees in
connection with the recruitment to compensate for forfeited awards granted to
the Direct Line employee by their former employer;
"Direct Line Directors" or "Direct Line Board" the directors of Direct Line;
"Direct Line Dividend Policy" means the dividend policy announced by the Direct Line at its Capital Markets
Day on 10 July 2024;
"Direct Line FY2023 ARA" the annual report and accounts of Direct Line for FY2023;
"Direct Line Group" Direct Line and its subsidiary undertakings and where the context permits,
each of them;
"Direct Line Permitted Dividends" the dividends permitted to be announced, declared or paid by Direct Line prior
to the Effective Date pursuant to the terms of the Co-operation Agreement;
"Direct Line Resolution(s)" such shareholder resolution(s) of Direct Line as are necessary to approve,
implement and effect the Scheme and the Acquisition including, amongst other
things, to make certain amendments to the Direct Line Articles;
"Direct Line Share Plans" means the Direct Line Group Deferred Annual Incentive Plan, the Direct Line
Group Share Incentive Plan, the Direct Line Group Long-Term Incentive Plan,
the Direct Line Group Restricted Shares Plan and the Direct Line Buyout Awards
(in each case as amended from time to time);
"Direct Line Shareholders" the holders of Direct Line Shares;
"Direct Line Shares" the existing unconditionally allotted or issued and fully paid ordinary shares
of 10 (10 )⁄ (11) pence each in the capital of Direct Line and any further
such ordinary shares which are unconditionally allotted or issued;
"Disclosed" the information: (i) disclosed by, or on behalf of Direct Line; (ii) in the
Direct Line FY2023 ARA; (iii) in the interim results of Direct Line for the
six month period ending on 30 June 2024; (iv) in this Announcement; (v) in any
other announcement to a Regulatory Information Service by, or on behalf of
Direct Line in the two years before the publication of this Announcement; (vi)
in the virtual data room operated on behalf of Direct Line for the purposes of
the Acquisition (which Aviva and/or its advisers were able to access prior to
the date of this Announcement); (vii) in any filings made by Direct Line with
the Registrar of Companies in England in the last three years; or (viii) as
otherwise fairly disclosed to Aviva (or its officers, employees, agents or
advisers in each case in their capacity as such) before the date of this
Announcement;
"Effective Date" the date on which either: (i) the Scheme becomes effective in accordance with
its terms; or (ii) (if Aviva elects to implement the Acquisition by way of a
Takeover Offer, subject to Panel consent and the terms of the Co-operation
Agreement), the date on which such Takeover Offer becomes or is declared
unconditional in accordance with the requirements of the Takeover Code, and
"Effective" shall be construed accordingly;
"Euroclear" Euroclear UK & International Limited;
"Excluded Shares" (i) any Direct Line Shares of which Aviva or any member of the Aviva Group is
the holder or in which Aviva or any member of the Aviva Group is beneficially
interested at the Scheme Record Time; or (ii) any Direct Line Shares which are
for the time being held by Direct Line as treasury shares (within the meaning
of the Companies Act);
"Facility Agreement" the bridge facility agreement dated the date of this Announcement and entered
into between, amongst others, Aviva as borrower and Citibank N.A, London
branch as mandated lead arranger and Citibank Europe plc, UK branch, acting as
agent;
"FCA" or "Financial Conduct Authority" the Financial Conduct Authority or any successor regulatory body;
"Forms of Proxy" the forms of proxy in connection with each of the Court Meeting and General
Meeting which will accompany the Scheme Document;
"FSMA" the Financial Services and Markets Act 2000 (as amended from time to time);
"FY2023" the financial year ended 31 December 2023;
"General Meeting" the general meeting of Direct Line Shareholders (including any adjournment
thereof) to consider and, if thought fit, pass the Direct Line Resolution(s);
"Joint Defence Agreement" the joint defence agreement between Aviva and Direct Line dated 9 December
2024;
"Latest Practicable Date" 20 December 2024, being the last Business Day prior to the date of this
Announcement;
"Listing Rules" the listing rules made by the FCA under Part VI of FSMA and contained in the
publication of the same name, as amended from time to time or (as applicable)
any set of rules and regulations replacing the same from time to time;
"London Stock Exchange" London Stock Exchange plc;
"Long Stop Date" 11.59 pm on 31 December 2025, or in the event that there is a Phase 2 CMA
Reference and the Condition set out in paragraph 3(c)(i) of Part A of Appendix
1 is not waived or invoked by Aviva, 27 October 2026, or, in either case, such
later time or date, if any, (a) as Direct Line and Aviva may agree in writing,
or (b) (in a competitive situation) as may be specified by Aviva with the
consent of the Panel, and in each case that (if so required) the Court may
allow;
"LSA" the Legal Services Act 2007 (as amended from time to time);
"Morgan Stanley" Morgan Stanley & Co. International plc;
"New Aviva Share" Aviva's ordinary shares of 32 (17)/(19) pence each proposed to be issued
credited as fully paid pursuant to the Acquisition;
"Offer Period" the offer period (as defined by the Takeover Code) relating to Direct Line,
which commenced on 27 November 2024;
"Official List" the official list maintained by the FCA pursuant to Part 6 of FSMA;
"Opening Position Disclosure" has the same meaning as in Rule 8 of the Takeover Code;
"Overseas Shareholders" Direct Line Shareholders (or nominees of, or custodians or trustees for Direct
Line Shareholders) not resident in, or nationals or citizens of the United
Kingdom;
"Panel" the Panel on Takeovers and Mergers;
"Part VII Transfer" an insurance business transfer scheme under Part VII of FSMA;
"PRA" the Prudential Regulation Authority as defined in FSMA, or any successor
regulatory authority;
"PwC" PricewaterhouseCoopers LLP;
"Quantified Financial Benefits Statement" the statement described as such and set out in Appendix 5;
"RBC Capital Markets" RBC Europe Limited;
"Registrar of Companies" the Registrar of Companies in England and Wales;
"Regulatory Information Service" any information service authorised from time to time by the FCA for the
purpose of disseminating regulatory announcements;
"Restricted Jurisdiction" any jurisdiction (other than the United Kingdom) into which making the
Acquisition, distributing information relating to the Acquisition, or paying
consideration pursuant to the Acquisition may result in a significant risk of
civil, regulatory or criminal exposure or would or may require Aviva to comply
with any requirements which in its absolute discretion is regarded as unduly
onerous;
"Run-off Partnerships" means the Rescue partnership with NatWest Group that expired in December 2022
and Travel partnerships with NatWest Group and Nationwide Building Society
which expired in the first half of 2024;
"Sanction Hearing" the hearing of the Court of the application to sanction the Scheme under Part
26 of the Companies Act;
"Scheme" the proposed scheme of arrangement under Part 26 of the Companies Act between
Direct Line and Scheme Shareholders in connection with the Acquisition, with
or subject to any modification, addition or condition approved or imposed by
the Court and agreed by Direct Line and Aviva;
"Scheme Document" the document to be sent to Direct Line Shareholders containing, amongst other
things, the Scheme and the notices convening the Court Meeting and General
Meeting;
"Scheme Record Time" the time and date to be specified in the Scheme Document, expected to be 6.00
pm on the date of the Court hearing to sanction the Scheme;
"Scheme Shareholder" a holder of Scheme Shares;
"Scheme Shares" all Direct Line Shares:
(i) in issue at the date of the Scheme Document and which remain in issue at
the Scheme Record Time;
(ii) (if any) issued after the date of the Scheme Document and before the
Scheme Voting Record Time, which remain in issue at the Scheme Record Time;
and
(iii) (if any) issued at or after the Scheme Voting Record Time but on or
before the Scheme Record Time either on terms that the original or any
subsequent holders thereof shall be bound by the Scheme or in respect of which
the original or any subsequent holders thereof are, or shall have agreed in
writing to be, so bound, and in each case which remain in issue at the Scheme
Record Time,
in each case other than any Excluded Shares;
"Scheme Voting Record Time" the date and time to be specified in the Scheme Document by reference to which
entitlement to vote at the Court Meeting will be determined;
"SRA" the Solicitors Regulation Authority, or any successor regulatory body;
"Takeover Code" the City Code on Takeovers and Mergers (as amended from time to time);
"Takeover Offer" subject to the consent of the Panel and the terms of the Co-operation
Agreement, should the Acquisition be implemented by way of a takeover offer as
defined in Chapter 3 of Part 28 of the Companies Act, the offer to be made by
or on behalf of Aviva to acquire the entire issued and to be issued share
capital of Direct Line, other than Direct Line Shares owned or controlled by
the Aviva Group and, where the context admits, any subsequent revision,
variation, extension or renewal of such offer;
"Third Party" each of a central bank, state, government or governmental, quasi-governmental,
supranational, statutory, regulatory, environmental, administrative,
professional, fiscal or investigative body, court, trade agency, association,
institution, body, employee representative body, any entity owned or
controlled by any government or state, or any other body or person whatsoever
in any jurisdiction;
"uncertificated" a share or other security title to which is recorded in the relevant register
of the share or security as being held in uncertificated form, in CREST, and
title to which, by virtue of the Uncertificated Securities Regulations 2001
(as amended) may be transferred by means of CREST;
"United Kingdom" or "UK" the United Kingdom of Great Britain and Northern Ireland;
"United States" or "US" the United States of America, its territories and possessions, any state of
the United States of America, the District of Columbia and all other areas
subject to its jurisdiction and any political sub-division thereof;
"US Exchange Act" the United States Securities Exchange Act of 1934, and the rules and
regulations promulgated thereunder;
"Wider Aviva Group" Aviva Group and associated undertakings and any other body corporate,
partnership, joint venture or person in which Aviva and all such undertakings
(aggregating their interests) have a direct or indirect interest of more than
20 per cent. of the voting or equity capital or the equivalent; and
"Wider Direct Line Group" Direct Line and associated undertakings and any other body corporate,
partnership, joint venture or person in which Direct Line and all such
undertakings (aggregating their interests) have a direct or indirect interest
of more than 20 per cent. of the voting or equity capital or the equivalent.
For the purposes of this Announcement, "subsidiary", "subsidiary undertaking",
"undertaking" and "associated undertaking" have the respective meanings given
thereto by the Companies Act.
All references to "pounds", "pounds sterling", "Sterling", "£", "pence",
"penny" and "p" are to the lawful currency of the United Kingdom.
All the times referred to in this Announcement are London times unless
otherwise stated.
References to the singular include the plural and vice versa.
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