Direct Line has accepted an improved acquisition bid by rival insurer, Aviva, valued at £3.6bn.

The news comes after the insurance firm rejected a £3.3bn offer from Aviva last week, which it described as "highly opportunistic" and one that "substantially" undervalued the firm.

Aviva’s offer values Direct Line at 275 pence per share, representing a premium of 73.3% on the closing Direct Line share price on 27 November.

The deal comprises 129.7 pence being paid per share in cash for each Direct Line share, 0.28 new Aviva shares per Direct Line share and dividend payments of up to 5 pence per Direct Line share, which will be paid prior to completion.

In a statement, the board at Direct Line said that it "remains confident" in its prospects in its standalone company and "continues to have conviction in the capabilities of the newly established leadership team" to deliver the firm’s strategy.

However, it added that after consulting with shareholders and considering the proposal, it has concluded that the proposal is "at a value that it would be minded to recommend" to its shareholders.

Furthermore, in the joint statement, Aviva said its "believes in the strong strategic and financial logic for a combination of Direct Line into the Aviva group".

Senior equity analyst at Hargreaves Lansdown, Matt Britzman, concluded: "Direct Line’s board had been holding out, insisting they could make it on their own. But even they had to admit that Aviva’s proposal is a golden ticket they’d struggle to match independently. Confidence in their solo strategy aside, this offer was just too good to pass up.

"Let’s not sugarcoat it: Direct Line has hit some serious potholes lately. Market share has been sliding, underwriting hasn’t exactly been flawless, and regulators have been knocking on the door. But with a fresh leadership team at the wheel, the company has been working on a bold turnaround plan.

"For Aviva, the price is pushing the limit of good value but snapping up Direct Line could be a strategic jackpot. It cements their place as a heavyweight in the UK home and motor insurance markets and brings fresh opportunities to steer Direct Line’s transformation, while squeezing out efficiency gains from their combined scale."

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