New proposal values Direct Line at 275 pshare
Direct Line rejected earlier 250pshare bid
Aviva has until Dec. 25 to make a firm offer
Parties reach preliminary agreement on potential deal

Dec 6 Reuters British insurer Direct Line is set to recommend a sweetened 3.61 billion pound 4.60 billion cashandstock takeover by Aviva if its bigger rival makes a formal offer, it said on Friday.

If the deal goes through, it would create a nearly 16.65 billion pound 21.23 billion Londonlisted 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 250pence cash and share bid that was rejected last week triggering speculation among analysts about a bidding war for the motor and home insurer.

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.

Shares in Direct Line jumped 7 at the market open on Friday to trade at 253 pence, while Aviva stock dipped 0.5.

Direct Line39;s shares soared more than 40 last week on news of the takeover interest. It had previously rejected a 239pencepershare takeover bid from Belgian rival Ageas in June.

According to British takeover rules, Aviva has until Dec. 25 to make a firm…