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For approach too lengthy, I’ve argued that large-cap and mid-cap UK shares are far too low cost. Therefore, I anticipated a number of takeover approaches for FTSE 100 and FTSE 250 companies in 2024. And on Wednesday, 28 February, it was Direct Line Insurance coverage Group (LSE: DLG) and its shares that had been put in play.
Direct Line loses floor
Based in 1985, the enterprise has grown to be a family identify in monetary companies, offering motor, enterprise, life, pet, and journey insurance coverage beneath varied manufacturers. Its crimson phone emblem is extensively recognised as a British model.
Then once more, Direct Line shares have been on a rocky trip for at the least the final 5 years. Certainly, they’ve misplaced a hefty 42.9% of their worth up to now half-decade.
Extra not too long ago, at their 52-week excessive, they peaked at 210.6p on 28 February — precisely a 12 months in the past. They then plunged, hitting their 2023 low of 132.11p on 7 July. Ouch.
Nonetheless, the share value has since bounced again, closing at 163.35p on Tuesday, 27 February. This was some reduction for me, as my spouse and I purchased this inventory for 201p a share in July 2022.
The well-known insurer is now a goal
What led us to speculate on this insurance coverage group was its juicy money dividends. However following heavy claims within the winter of 2022/23, the corporate cancelled its payout in early January 2023. In fact, this despatched the inventory spiralling southwards like a stone.
On Wednesday, significantly better information arrived for the group’s struggling shareholders. Simply earlier than midday, Belgian insurer Ageas admitted that it had made an unsolicited bid to purchase the British enterprise.
Ageas has indicated that it’s prepared to pay 233p per Direct Line share, made up of a combination of money and the Belgian firm’s personal shares. This values the FTSE 250 agency at £3.1bn.
This represents a tidy 42.6% premium to Direct Line’s closing value the day earlier than. However in my lengthy expertise, boards of administrators not often settle for first bids. Usually, they reject these as undervalued and demand the next knockout value.
Therefore, it appears to me unlikely that the Brussels-based group will win this battle within the first spherical. In the meantime, the shares have leapt to 201.9p, a reduction of 13.3% to the supply value — additionally typical at this stage of the takeover dance.
What’s subsequent?
Earlier than the market shut on Tuesday, Direct Line’s administrators fired again. Predictably, they rejected the “extremely conditional, non-binding indicative proposal” from Ageas, which really arrived on 19 January.
The deal — 100p in money and one new Ageas share for each 25.24047 Direct Line Group shares — was “unsure, unattractive…considerably undervalued the group… and likewise being extremely opportunistic in nature”. Therefore, the board duly rejected this method.
What occurs subsequent is essentially within the fingers of the gods of M&A (mergers and acquisitions). However new CEO Adam Winslow will arrive on 1 March to discover a extremely popular potato on his desk.
As a Direct Line shareholder, I’m delighted {that a} potential bidder has recognized and partly unlocked the worth hiding inside this established enterprise. What’s extra, I’m holding on tight to my stake, in hopes of a better supply rising!
