Aviva set to buy Direct Line to create $21 billion British insurer

British insurer Direct Line is set to recommend a sweetened 3.61 billion pound ($4.60 billion) cash-and-stock takeover by Aviva, it said on Friday, if its bigger rival makes a formal offer.

If the deal goes through, it would create a nearly 16.65 billion pound ($21.23 billion) London-listed insurer, bigger than Legal & General and only slightly behind No.1 Prudential in terms of market value.



The new proposal values Direct Line at 275 pence per share, compared with a 250-pence cash and share bid that was rejected last week.

The companies in a joint statement on Friday said they have reached a preliminary agreement on the financial terms of a potential acquisition.


Direct Line shareholders would get 129.7 pence in cash and 0.2867 new Aviva shares per Direct Line share, leaving them owning about 12.5% of the combined company.

Motor and home insurer Direct Line's shares soared more than 40% last week on news of the takeover interest. It had previously rejected a 239-pence-per-share takeover bid from Belgian rival Ageas in June.

According to British takeover rules, Aviva has until Dec. 25 to make a firm offer or walk away.