Ageas SA/NV (“Ageas”) notes the recent press speculation in relation to Direct Line Insurance Group Plc (“Direct Line”) and confirms that it is in the preliminary stages of considering a possible offer (“Possible Offer”) to acquire the entire issued and to be issued share capital of Direct Line (the “Proposed Transaction”). Ageas firmly believes that the combination of Ageas’ and Direct Line’s UK businesses will be beneficial for both Ageas and Direct Line shareholders, providing a meaningful opportunity to unlock shareholder value through the delivery of significant operational and capital synergies.

Terms of the Possible Offer

Ageas believes the Proposed Transaction represents compelling strategic and financial value for both Ageas and Direct Line shareholders.

Under the terms of Ageas’ Possible Offer, Direct Line shareholders would receive:

100 pence in cash for each Direct Line share; and
One newly issued Ageas share for every 25.24047 Direct Line shares.

Based on a Sterling to Euro exchange rate of 1.169 and the closing price of Ageas and Direct Line shares on 27 February 2024, being the last date prior to the date of this announcement, the Possible Offer has an implied value of 233 pence per Direct Line share, representing a premium of 42.8% to 163.35 pence, being the closing price per Direct Line share.

The Possible Offer values the entire issued and to be issued ordinary share capital of Direct Line at approximately £3,095 million. On the basis of Ageas’ Possible Offer, Direct Line shareholders would, on completion of the Proposed Transaction, own approximately 22% of the enlarged Ageas Group’s issued share capital.

It is currently envisaged that the cash component of the consideration and associated transaction costs will ultimately be financed through a mix of existing cash and newly issued debt instruments. The share consideration is intended to be satisfied via newly issued Ageas shares.

Ageas reserves the right to make an offer for Direct Line on less favourable terms than those set out in this announcement: (i) with the agreement or recommendation of the Direct Line Board; (ii) if a third party announces a possible offer or firm intention to make an offer for Direct Line which, at that date, is of a value less than the value implied by the Possible Offer; or (iii) if Direct Line announces a Rule 9 waiver pursuant to the Code or a reverse takeover. Ageas reserves the right to introduce other forms of consideration and/or vary the mix or form of consideration of any offer. Ageas reserves the right to reduce the offer consideration to take account of the value of any dividend or other distribution which is announced, declared, made or paid by Direct Line after the date of this announcement.

Strategic rationale

The Proposed Transaction is in line with Ageas’ stated M&A criteria and Impact24 ambitions, as it would further strengthen Ageas’ position in a European market where it already operates, whilst rebalancing Ageas’ business profile towards controlled entities and Non-Life business.

Ageas is confident in the underlying attractiveness and future opportunities of the UK personal lines sector. Over the long-term, the UK personal lines sector has proven to be structurally profitable and, through its own UK operations, Ageas sees its strong potential. Over the last 12 months, many of the UK sector fundamentals have improved as claims patterns and frequency have stabilised, while an evolution towards a healthier and more predictable market is being observed thanks to developing regulatory clarity and pricing practice changes. The repricing implemented in the sector in response to elevated inflation levels further underpins its resilience. Ageas has made significant progress with the repositioning of its UK business, as communicated during its Investor Day in November 2023, and is confident that the UK will play an important role in Ageas’ future growth ambitions by further strengthening one of Ageas’ home markets.

Ageas believes that the combination of Ageas’ and Direct Line’s complementary UK businesses would lead to the creation of a strong personal lines franchise in the UK with key positions in Ageas’ preferred business lines of Household and Motor. This combination would benefit from highly complementary distribution models founded on the combination of Ageas’ strong relationships with intermediary distribution partners and Direct Line’s strong brand recognition for direct and Price Comparison Websites distribution. Furthermore, Ageas remains confident in its capacity to pursue sustainable and profitable growth through this transaction, underpinned by the delivery of operational synergies, scaling up the knowledge in domains like product innovation capabilities, best-in-class customer service and the unique ability to leverage Data Analytics.

By enhancing Ageas’ position in the UK market, the Proposed Transaction would create a significant engine for the Ageas Group to drive enhanced capital, earnings and cash generation, underpinning its progressive dividend ambitions.

Ageas strongly believes the Proposed Transaction would create additional value for all Ageas’ stakeholders, whose interests have been carefully taken into account.

In the meantime, Ageas UK is operating business as usual, and continues to execute its focused and successful personal lines insurance strategy delivering on long term organic growth plans alongside its valued distribution partners.

Financial rationale

The Proposed Transaction offers a unique opportunity to unlock significant value and deliver accretion to Ageas’ Operational Capital Generation through the delivery of substantial operational and capital synergies.

Based on Ageas’ outside-in analysis undertaken to date, it sees potential to drive operational improvements and efficiencies through the sharing of best-practices and the removal of overlapping overhead costs after the integration of Ageas’ and Direct Line’s UK businesses.

In the medium term, the Proposed Transaction is expected to deliver a highly attractive return on the equity capital invested. The benefits from the Proposed Transaction are also expected to increase the enlarged Group’s financial and strategic flexibility, underpinning its progressive dividend ambitions. The financing of the Proposed Transaction as currently envisaged will allow Ageas to maintain a robust Solvency II position above Ageas’ risk appetite levels and sound leverage ratios. The adoption of a Group-wide Non-Life PIM (Partial Internal Model) is expected to generate enhanced capital efficiencies.

Ageas strongly believes that its proposal is in the interest of both Ageas’ and Direct Line’s shareholders and looks forward to further discussing this proposal with Direct Line’s Board of Directors.

A further announcement will be made if and when appropriate.

Additional information

Ageas continues to carefully assess the Proposed Transaction with a disciplined focus on the strategic and financial rationale, and there can be no certainty that an offer will be made, even if the pre-conditions are satisfied or waived.

This announcement does not constitute an announcement of a firm intention to make an offer under Rule 2.7 Code. The announcement of a firm intention to make an offer under Rule 2.7 of the Code remains subject to the satisfaction or waiver by Ageas of a number of pre-conditions, including, among others, completion of satisfactory due diligence by Ageas and reciprocal due diligence by Direct Line, receipt of irrevocable undertakings from each member of the Direct Line Board of Directors who holds Direct Line shares and Direct Line shareholders to vote in favour of the Possible Offer, agreement of the detailed terms of the Possible Offer and the unanimous and unqualified recommendation of the Board of Direct Line. Ageas reserves the right to waive in whole or in part any pre-conditions.

In accordance with Rule 2.6(a) of the Code, Ageas will be required, by not later than 5.00 pm (London time) on 27 March 2024, to either announce a firm intention to make an offer for Direct Line in accordance with Rule 2.7 of the Code or announce that Ageas does not intend to make an offer for Direct Line, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can only be extended with the consent of the UK Takeover Panel in accordance with Rule 2.6(c) of the Code.

Enquiries:

BofA Securities (Financial Adviser to Ageas SA/NV)