MADRID (Reuters) - Spanish insurance company Mapfre (MAP.MC) is to buy the Italian and German businesses of Direct Line (DLGD.L), Britain’s largest motor insurer, for 550 million euros ($700 million), in a deal that will immediately boost earnings, Mapfre said on Thursday.
“The Italian and German assets acquired are absolutely strategic for Mapfre, strengthening the two main lines of our global growth plan, allowing us to increase our presence in Europe,” Chairman Antonio Huertas said in a statement.
Mapfre operates in 47 countries with over 23 million clients worldwide and is one of the top 10 largest insurance groups in Europe in terms of premium volumes.
Sources told Reuters in July that Direct Line was in advanced talks with at least four suitors to sell the businesses.
In Germany Direct Line is the third-biggest player in the online car insurance market, with about 600,000 customers, behind mutual insurer HUK24 and DA Direct, which is part of Zurich Insurance ZURN.VX.
Direct Line’s Italian and German businesses come with insurance premiums worth 714 million euros and 1.6 million clients and would have been worth 19.5 million euros in pre-tax profits in 2013, Mapfre said.
All net proceeds from the sale would be returned to Direct Line’s shareholders, the British company said, adding that it expects to recognise a pre-tax gain of about 160 million pounds ($260 million) from the sale.
Direct Line’s share price was up 1 percent at 300.1 pence by 0822 GMT, when Mapfre’s was down 0.4 percent at 2.9 euros. The Stoxx Europe 600 European insurance sector index <0#.SXIP> was up 0.8 percent.
“This is a good outcome for shareholders in our view, with the International units strategically challenged and operating in tough markets,” Shore Capital analyst Eamonn Flanagan said.
Direct Line, whose brands also include Churchill, Privilege and the Green Flag roadside recovery service, was spun off from Royal Bank of Scotland (RBS.L) in an IPO last year.
Deal activity in the insurance sector has risen this year, helped by the stock market listing of Dutch insurer NN Group (NN.AS), Europe’s biggest initial public offering (IPO) of 2014.
Additional reporting by Jonathan Gould; Editing by Robert Hetz and Greg Mahlich