Direct Line, the UK insurer, has seen its share price surge by more than a third after it rejected a takeover offer from larger rival Aviva.
The non-binding cash and shares offer, which valued the struggling firm at £3.3bn, represented a 60% premium to the closing price for Direct Line’s shares on Monday 18 November – the day before it was made.
Direct Line said it saw the proposal as “highly opportunistic”, adding that it “substantially undervalued the company”.
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The company, which fended off a £3.17bn takeover attempt by Belgian rival Ageas earlier in the year, has suffered in the motor insurance sphere.
Rising claim costs and stiff competition, largely from online-only players with smaller cost bases, have taken a toll.
Earlier this month Direct Line, which includes the Churchill and Privilege brands, revealed a “series of initiatives” designed to slash its cost base, with 550 job losses included in the cuts.
Its statement on Wednesday evening stated that it continued to make progress towards its financial and profitability targets under the turnaround plan.
Shares, which had plunged by 14% since Ageas ended its interest, rose by as much as 38% at the open on Thursday.
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Analysts do not expect the rejection of the offer to be the end of the matter, with the prospect of a possible bidding war in focus for investors.
A research note by the investment bank Peel Hunt said: “Aviva could be persuaded to sweeten the deal to 260p-265p, which may help satisfy the DLG board.
“There is downside risk to DLG’s standalone strategy and retaining some upside in an Aviva-DLG combination could be an attractive proposition, which is worth exploring in our view,” it concluded.