Investment organisation Redwheel has reacted following the “unattractive” proposal by Ageas for a possible offer to acquire Direct Line Insurance Group (Direct Line Group or DLG).
As confirmed by both Ageas and DLG this week, the latter received a highly conditional, non-binding indicative proposal in January, with the terms comprising 100 pence in cash and one new Ageas share for every 25.24047 DLG shares.
“The board considered the proposal with its advisers and considered it to be uncertain, unattractive, and that it significantly undervalued Direct Line Group and its future prospects while also being highly opportunistic in nature,” DLG, whose new chief executive Adam Winslow came on board today, revealed in a statement.
“Accordingly, the board unanimously rejected the proposal on January 29, 2024.
Commenting on the proposal, Redwheel’s Ian Lance sounded alarm bells regarding a wider issue in the UK equity market.
“We support the board’s decision to reject the proposal, noting Direct Line’s significant market share in the UK and improving sector fundamentals which position the company for future growth,” Lance, co-head of the UK value & income team at Redwheel, said in an emailed statement.
“This event serves as further evidence of the issue we recently highlighted following the recent Currys takeover bid. The largest market participants in the UK are increasingly diverting their investments away from UK equities towards other markets, particularly the US. This is despite UK equities being valued at close to all-time lows, suggesting the potential for attractive returns.”
Lance was referring to electronics retailer Currys, which has turned down a second offer from US investor Elliott.
He declared: “Significant undervaluation in certain pockets of the UK equity market has resulted in foreign corporate buyers seeking to capitalise on these depressed prices. Unless this trend is reversed, we expect to see foreign ownership continue to grow and local ownership continue to fall.
“We firmly believe that a robust equity market is essential for a healthy and functional economy, and we urge the relevant UK authorities to take proactive measures to encourage domestic investors to reallocate funds towards UK equities, thus safeguarding a vital component of the country’s financial infrastructure.”
What do you think about this story? Share your thoughts in the comments below.
