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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 would possibly 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 really useful 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 latest development, 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 “up to 5% in the form of dividend payments” for every share.
The small print are topic to board and shareholder approval. However the announcement says the Direct Line board intends “to recommend unanimously that Direct Line shareholders vote” to simply accept.
Direct Line good points
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 seems to be 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 occasions, regardless of its modest dividends. But it surely had been struggling, in a extremely aggressive insurance coverage market blighted by inflation and adversarial climate.
Nonetheless, the shares had been on what I assumed was an undemanding price-to-earnings (P/E) valuation based mostly on forecasts for an earnings restoration. Not less than, earlier than the Aviva enhance.
Money vs dilution
However as an Aviva shareholder, I actually should surprise if we’re getting a great deal right here.
The Direct Line board did reject Aviva’s earlier method, calling it “extremely opportunistic“. It clearly wasn’t taking place and not using a combat if it didn’t see sufficient money on the desk. So this closing provide no less than prevented 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, partially, for the takeover.
We have now 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?
Nearly as if to move off dilution issues, Aviva stated it “intends to declare a mid-single-digit percentage uplift in the dividend per share following completion.”
And the board “additional intends to keep up the present steerage of mid-single digit development within the money price of the dividend from this rebased stage.“
For me, investing for long-term dividends, I believe that’s sufficient to maintain me on board. However I believe issues over the takeover value might imply additional Aviva share value weak point.
