If Aviva PLC (LSE:AV.) does eventually take over Direct Line Insurance Group PLC (LSE:DLG) the acquisition could significantly accelerate its move toward capital-light earnings, according to UBS.
Aviva has offered roughly £2.50 per share for Direct Line, a 55% premium on its recent share price, with the deal structured as part cash and part Aviva shares.
If successful, the acquisition would give Aviva a commanding 22% share of the UK personal insurance market, surpassing Admiral.
Direct Line’s board has rejected the offer, claiming it undervalues the company.
Aviva projects the deal would deliver annual cost savings of £150 million and capital synergies worth £450 million.
UBS analysts estimate a 17% boost to Aviva’s earnings per share within two years while keeping debt at manageable levels. It says 'buy' up to 590p.
In afternoon trading, the FTSE 100-listed life insurer's share price was down almost 3% at 475.19p.