The UK’s Competition and Markets Authority (CMA) has launched a review of Aviva’s planned £3.7 billion takeover of Direct Line, a move that could reshape the landscape of the insurance sector in the country. The probe comes after the agreement reached between Aviva and Direct Line in December of last year. This has raised some serious doubts about what the agreement will do to competition in the market.
The CMA will examine the likely impact of the merger on competition in the short-term and long-term insurance market. In particular, they’ll focus their efforts on the home and motor insurance markets. If this deal is allowed to go ahead, the combined entity would dominate more than 20% of these key insurance segments in the UK.
As part of the agreement, Aviva’s shareholders are set to own approximately 87.5% of the new company, while Direct Line’s shareholders would hold around 12.5%. This distribution is alarming given the stated purpose of the program, as such a large share of the funding would likely result in less competition in the market.
The CMA is to report its findings by July of this year. This new timeline will determine the direction of travel for future actions taken by both companies.
Even experts at JP Morgan were highly confident in December that the merger would not create significant competition concerns. They think it would find an approving regulator. The CMA’s investigation signals a critical examination of the deal’s implications for consumers and competitors alike.
“may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services” – CMA
The CMA is now under tremendous pressure as it increases its assertiveness to protect competitive markets. This underscores its promise to put protecting the public interest first and foremost. The agency’s mission calls for closely scrutinizing proposed mergers that would create or exacerbate monopolistic behavior or harm competition and consumer choice.