Direct Line’s shares surged as investor’s hoped the rejection might pave the way for a second takeover bid from the U.K.’s largest insurance company

Aviva Plc is exploring a potential takeover of Direct Line Insurance Group Plc, people with knowledge of the matter said.

Goldman Sachs Group Inc. has switched sides to advise Aviva Plc on its £3.3 billion ($4.2 billion) takeover bid for Direct Line Insurance Group Plc, only eight months after helping the target successfully defend against another suitor.

Aviva has launched a £3.4bn takeover bid for rival Direct Line in a tie-up that would create one of Britain’s largest car insurers.

The insurance giant, led by Amanda Blanc (pictured), revealed last night that it tabled an offer for its smaller competitor worth 250p a share.

Aviva has contacted shareholders in Direct Line Group (DLG) to convince them to reconsider its takeover offer. That was according to the Financial Times (FT), which said that the move “could pave the way for a hostile takeover bid for its smaller rival”.

Shares in Direct Line surged as much as 40 per cent on Thursday morning after the insurer rejected a £3.3bn takeover approach from Aviva.

The bid interest from Aviva comes after Direct Line fended off a £3.1 billion approach from Belgian insurer Ageas in February. Direct Line is in the middle of a turnaround after being caught on the back foot last year by the soaring cost of claims.

(Reuters) -Shares in UK's Direct Line Insurance soared over 36% in early trade on Thursday after it rejected a 3.28 billion pound ($4.16 billion) takeover offer from bigger rival Aviva, saying it "substantially undervalued" the company.