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Aviva (LSE: AV.) shareholders are a affected person lot, with the shares struggling. Regardless of a profitable restructuring plus a forecast 7.5% dividend yield, the value is down 17% in 5 years.
With Aviva trying undervalued, I’d even been questioning if somebody may make a takeover provide. However then Aviva turned the tables and approached Direct Line Insurance coverage Group (LSE: DLG).
On 23 December, we heard that the boards of the 2 firms have reached an settlement for a beneficial money and share provide for Aviva to purchase out Direct Line.
No change but
The early market response noticed barely any motion for the Aviva share value, however Direct Line rose one other 3% in early buying and selling.
That actually simply cements the current pattern, with Direct Line shares up 58% since information of the talks first broke on 27 November.
The ultimate phrases of the settlement imply Direct Line shareholders will obtain 0.2867 new Aviva shares, in addition to 129.7p in money, plus “as much as 5% within the type of dividend funds” for every share.
The main points are topic to board and shareholder approval. However the announcement says the Direct Line board intends “to advocate unanimously that Direct Line shareholders vote” to simply accept.
Direct Line features
Aviva reckons the deal values Direct Line shares at 275p, 10% above the market value as I write. And it’s a 73% premium to the closing value on 27 November.
It appears to be like like a cracking Christmas current for Direct Line shareholders. The bosses of each firms, naturally, are brimming over with enthusiasm.
I’ve even considered shopping for some Direct Line shares a couple of instances, regardless of its modest dividends. Nevertheless it had been struggling, in a extremely aggressive insurance coverage market blighted by inflation and antagonistic climate.
Nonetheless, the shares have been on what I assumed was an undemanding price-to-earnings (P/E) valuation primarily based on forecasts for an earnings restoration. At the very least, earlier than the Aviva increase.
Money vs dilution
However as an Aviva shareholder, I actually must surprise if we’re getting an excellent deal right here.
The Direct Line board did reject Aviva’s earlier method, calling it “extremely opportunistic“. It clearly wasn’t happening with no combat if it didn’t see sufficient money on the desk. So this last provide not less than averted a drawn-out hostile takeover battle.
Aviva accomplished a £300m buyback of its personal shares in June 2024. And now it’s issuing new shares to pay, partly, for the takeover.
We now have some dilution to get our heads spherical right here, and dealer forecasts will certainly be up within the air for some time.
What subsequent for dividends?
Virtually as if to go off dilution considerations, Aviva stated it “intends to declare a mid-single-digit share uplift within the dividend per share following completion.”
And the board “additional intends to take care of the present steering of mid-single digit progress within the money price of the dividend from this rebased stage.“
For me, investing for long-term dividends, I feel that’s sufficient to maintain me on board. However I think considerations over the takeover value might imply additional Aviva share value weak spot.
