Aviva (AV) Status update summary

Transaction highlights and strategic rationale

• Announced a recommended GBP 2.7/275 pence per share offer for Direct Line Group, valuing DLG at GBP/£3.7 billion, with a 73% premium to the undisturbed price and a balanced mix of cash and Aviva shares for DLG shareholders.

• The deal creates a UK personal lines leader with over 18 million policies and pro-forma 2023 GWP of £5.4 billion, expanding the customer base and leveraging brands like Direct Line and Churchill.

• Direct Line shareholders will receive 0.2867 new Aviva shares, 129.7 pence in cash, and up to 5 pence in pre-completion dividends per share, owning about 12.5% of the enlarged group.

• The transaction is expected to be EPS accretive in the first full year post-completion, delivering around 10% run rate EPS accretion and material capital benefits.

• Integration will be supported by dedicated resources, leveraging Aviva’s M&A and operational track record, with workforce reductions of 5–7% phased over three years.

Financial impact and capital management

• Cash component of GBP 1.75 billion funded from internal resources and a new facility of up to £1.85 billion, with DLG shareholders to own about 12.5% of the enlarged group.

• Pro forma Solvency II cover ratio remains at the top end of the 160%-180% range post-transaction, with leverage expected to rise temporarily to 31%-32% before returning below 30%.

• Significant capital synergies expected from diversification benefits at both the UK GI and group levels, reducing overall capital requirements.

• Central liquidity to remain above GBP 1 billion, consistent with the capital management framework.

• No buyback expected at FY24/FY25 results due to internal funding, but regular buybacks anticipated to resume in 2026 to reflect the enlarged share count.

Shareholder returns and integration timeline

• Ordinary dividends have grown at a 5% annual cash cost rate, with DPS growth around 7%; transaction enables a mid-single digit uplift in DPS post-completion.

• Dividend growth guidance continues from the uplifted level, with future buybacks to accommodate the increased share count.

• Direct Line shareholders to vote on the transaction in March 2025, with anticipated completion by mid-2025, subject to regulatory and court approvals.

• Capital synergies and policy transfers expected to materialize over 12-18 months post-completion, with Part VII transfer and reinsurance arrangements phased in.

• Direct Line shares will be delisted upon completion, and new Aviva shares will be admitted to trading.