The proposed £3.7 billion merger between Aviva and Direct Line Insurance Group expects to see one-off integration costs of about £250 million ($314.3 million), with the majority of the cost savings coming from the reduction of overlapping roles.
Aviva expects to merger to generate annual run-rate pretax cost synergies of at least £125 million by the end of the third year after the completion of the deal. Synergies are expected to be delivered equally in each of the three years after completion. Recurring synergies are expected to be incremental to Direct Line’s previously announced cost savings target of £100 million per year, Aviva said.
About 50% of the potential synergy costs are expected to come from the reduction of overlapping roles in certain shared services, head office and senior management functions, as well as the “rationalization” of related external costs, according to Aviva.
Thirty (30) percent of the synergy is expected to come from the reduction of overlapping roles across the companies’ combined insurance operations and increased efficiency resulting from the combined entity’s scale. Meanwhile, about 20% of the synergy is estimated to come from the integration of duplicative back and middle-office IT platforms and the rationalization of supporting teams, Aviva noted.
The potential synergies are expected to result in one-off total integration costs of about £250 million, of which about 75% are to be incurred in the first two years after deal completion, Aviva said, adding that there are no expected material dis-synergies in connection with the deal.
“The integration of the businesses will involve combining the Direct Line business and group functions into the Aviva U.K. personal lines business,” Aviva said. “It is intended that Direct Line’s core brands will be maintained, including Direct Line, Churchill and Green Flag.”
An Aviva spokesperson declined to comment on the number of roles that may be affected, Best said.
The deal was first announced in December of last year. Under the terms, each Direct Line shareholder will be entitled to receive 0.2867 new Aviva shares, 129.7 pence in cash and up to 5 pence in dividends.
The transaction is anticipated to close around mid-2025, subject to the satisfaction or waiver of certain conditions. Upon completion, Aviva shareholders will own about 87.5% of the combined entity, while Direct Line shareholders will own 12.5% of the issued and to be issued share capital of Aviva.
