Shares in UK insurer Direct Line Insurance soared over 36% in early trade in London today after it rejected a £3.28 billion takeover offer from bigger rival Aviva, saying it "substantially undervalued" the company.
Aviva shares fell about 3% to be the top percentage loser on the blue-chip FTSE 100.
On November 19, Aviva made a 250-pence-per-share offer, which represented a nearly 60% premium to the stock's close a day earlier.
If the deal went through, Direct Line shareholders would have received 112.5 pence in cash and 0.282 new Aviva shares for every Direct Line share held.
Separately, the life, motor and home insurer Aviva, said Direct Line has refused to engage in further discussions.
The chairpersons of both companies have spoken directly to explain why Direct Line was rejecting the offer, a person with knowledge of the matter said.
Direct Line said its board considered Aviva's proposal with its advisers and concluded that it was "highly opportunistic".
According to British takeover rules, Aviva has until December 25 to make a firm offer or walk away.
In March, London-based Direct Line also rejected a 239-pence-per-share takeover bid from Belgian rival Ageas, which was 4.6% lower than Aviva's offer.
Shares of the UK insurer have fallen as much as 14% since Ageas abandoned its pursuit in the same month.
Direct Line - under the leadership of its new CEO Adam Winslow, who joined the company from Aviva in March - has engaged in efforts to energise a business struggling in a weak motor market.
The company missed expectations for half-year operating profit in September, hurt by its underperforming motor insurance arm.
It has implemented aggressive price hikes to mitigate the rising costs of claims and announced plans to cut 550 roles, or about 5% of its global workforce, earlier in November.
Direct Line said it continues to make progress towards its financial and profitability targets under its turnaround strategy.
