Companies roundup: Aviva, Direct Line & Petrofac

Aviva (AV.) is set to buy Direct Line (DLG) for almost £4bn in cash and shares, having struck a preliminary deal earlier this month.

The FTSE 100 insurance group has agreed to pay 275p a share for its FTSE 250 rival, valuing Direct Line at £3.7bn on a fully diluted basis. This represents a 73 per cent premium to its pre-offer closing price. 

Almost 130p per share will be paid in cash from Aviva's existing resources, and 0.288 Aviva shares will be provided for every Direct Line share. A final dividend of up to 5p per share will also be paid before completion. Aviva said it would continue to use Direct Line’s “well-recognised and leading customer-centric brands”. 

Job cuts, IT integration and economies of scale can deliver at least £125mn of pre-tax cost savings within three years of the deal completing, according to Aviva. This is on top of £100mn of savings Direct Line is on track to deliver by the end of 2025. However, the combined company expects to incur £250mn of one-off integration costs, most of which are expected within the first two years. It seems Aviva will maintain the Direct Line brand and suggested it would cross-sell products such as pet insurance and car breakdown recovery, offered by Direct Line, to existing Aviva customers.

Aviva’s chief executive Dame Amanda Blanc said the financial strength and scale of the new group “means customers will benefit from competitive pricing, an enhanced claims experience and even better service”.

Danuta Gray, chair of Direct Line, added that the deal will allow shareholders to “realise the value of their investment in the near term”. JS

Read more: Insurance giants agree takeover deal

Petrofac finalises shareholder wipeout

Oil and gas project builder and services specialist Petrofac (PFC) has finally pulled in enough support from lenders and clients to announce a formal restructuring, a year after telling investors its debt load was unmanageable. The company was once worth over £3bn but corruption scandals and recent financial peril have seen it drop steadily to a new low of under £50mn this morning. A draft arrangement was released in April, warning of a debt-for-equity swap. 

The company said on Monday the majority of lenders had backed the deal, which will also see it take on new loans worth $131mn (£104mn), designed “super senior” and raising $194mn in new equity. The total debt load stood at $786mn as of 30 June, although the company is in default given much of this is past due. As per the debt-for-equity swap, $771mn of borrowings will be turned into shares. 

These will only make up 17 per cent of the post-restructuring share count, Petrofac said (see below for the full table). Current shareholders will represent 2.5 per cent of the share count, with funders backing new debt getting 50 per cent of the company. Petrofac will also hand creditors warrants worth 48 shares for every 100 shares subscribed for now, exercisable for free within five years if the company’s market capitalisation is over $1.3bn. 

Lenders representing just over half of the company’s borrowings have backed the deal, with the company offering cash payments to those who support the “lock-up agreement” in the form of an “early bird fee”. Shareholders will vote on the deal in February. AH