The proposed £3.7bn acquisition of Direct Line by insurance behemoth Aviva is under investigation by the UK’s competition watchdog, the Competition and Markets Authority (CMA).
The CMA has initiated its phase one inquiry to determine if the deal could significantly reduce competition, as reported by City AM.
Interested parties have been invited by the CMA to comment on the deal until the end of May, with a decision deadline set for 10 July.
This means that the merger will either be approved in July or proceed to a more detailed, phase two investigation where the parties can propose remedies.
In December 2024, Aviva and Direct Line agreed on the terms of a potential takeover, which valued Direct Line shares at 275p, a 73 per cent premium on the company’s share price before the offer and a 50 per cent premium on its six-month average share price.
As part of the deal, Direct Line shareholders would receive 129.7 pence in cash, plus 0.3 new Aviva shares and a 5p dividend for each Direct Line share they own.
Direct Line had previously turned down an earlier offer from Aviva that would have valued its stock at 250p per share.
Aviva stated that there was a “compelling strategic rationale…further accelerating capital-light growth and customer ambitions in line with Aviva’s strategy”, adding that the merger is expected to yield as much as £125m in cost synergies.
Direct Line, established in 1985 as the insurance arm of the Royal Bank of Scotland, transitioned into an independent entity on the stock market in 2012.
CMA wings clipped
The Competition and Markets Authority (CMA) is facing a reduction in its powers as the government aims to stimulate economic growth by curbing the influence of the UK’s major regulators.
The CMA is among 17 regulatory bodies that have been directed by the government to devise strategies for reducing business burdens to accelerate economic expansion.
In a significant move this January, Marcus Bokkerink resigned from his position as chair of the CMA following pressure from Business Secretary Jonathan Reynolds, as part of the government’s efforts to reinforce their pro-growth stance.
Reynolds commented: “This government has a clear plan for change – to boost growth for businesses and communities across the UK. As we’ve set out, we want to see regulators including the CMA supercharging the economy with pro-business decisions that will drive prosperity and growth, putting more money in people’s pockets.”
