Direct Line previously rejected a 250p per share bid, saying the offer was “highly opportunistic and substantially undervalued the company”, and then also turned down a 261p per share bid.
The potential takeover of Direct Line, which owns the Churchill and Green Flag brands, would create a car insurance giant.
In a statement to shareholders, Direct Line said: “The board of Direct Line remains confident in Direct Line’s prospects as a standalone company and continues to have conviction in the capabilities of the newly established leadership team to deliver the announced strategy.”
Dan Coatsworth, investment analyst at AJ Bell, said: “Aviva had no choice but to dig deeper if it wanted to secure Direct Line. Lo and behold, the offer has been raised to a much more realistic level to get the deal done.
“Offering 275p per share amounts to a generous 73.3% bid premium, implying that it is paying a fair price based on current and future prospects. A cash bid at this price would have been the sweetest of deals, but, as it stands, an all-share deal is the next-best thing.
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“The next test is to see if shareholders push for more. Judging by recent city chatter, 275p should be enough to keep everyone happy and Aviva might be able to wrap this up fairly quickly.”
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: “Direct Line’s board had been holding out, insisting they could make it on their own. But even they had to admit that Aviva’s proposal is a golden ticket they’d struggle to match independently. Confidence in their solo strategy aside, this offer was just too good to pass up.
“Let’s not sugarcoat it: Direct Line has hit some serious potholes lately. Market share has been sliding, underwriting hasn’t exactly been flawless, and regulators have been knocking on the door. But with a fresh leadership team at the wheel, the company has been working on a bold turnaround plan.
“For Aviva, the price is pushing the limit of good value, but snapping up Direct Line could be a strategic jackpot. It cements their place as a heavyweight in the UK home and motor insurance markets and brings fresh opportunities to steer Direct Line’s transformation, while squeezing out efficiency gains from their combined scale.”
