Aviva will pay 129.7 pence in cash and 0.2867 of its own shares for each Direct Line share as part of the takeover.
It will also pay up to 5p in dividend payments per share to Direct Line shareholders, with Aviva shareholders owning 87.5% of the new company and Direct Line shareholders the rest.
Shareholders will vote on the deal in March, with the deal due to complete mid-2025.
Aviva's chief executive Amanda Blanc said:
"Aviva and Direct Line share a deep commitment to excellence in looking after customers and this will remain a top priority following the acquisition," she added.
"The financial strength and scale of the combined group means customers will benefit from competitive pricing, an enhanced claims experience and even better service."
Matt Britzman, senior equity analyst, Hargreaves Lansdown:
“Christmas has come early for Direct Line investors, as Aviva’s £3.7bn buyout has officially been signed, sealed, and delivered. The terms of the deal remain unchanged from what was floated to the markets earlier this month, and the festive confirmation has wrapped up what many investors had already baked into expectations, leaving little surprise under the tree.
"This deal strikes a balance that seems to deliver value for both parties. Direct Line has been navigating choppy waters, with its market share steadily eroding and a history of missteps from previous management leaving the ship off course. While the new management team has been working to steady the vessel, even they couldn’t deny that Aviva’s offer was the golden ticket they’d struggle to replicate on their own. Though they’ve expressed confidence in their independent strategy, this proposal was simply too compelling to pass up.
"For Aviva, the price tag is sitting on the edge of what might be considered a bargain, but the strategic potential could prove to be a real cracker. Acquiring Direct Line cements Aviva’s status as the heavyweight champion in the UK home and motor insurance markets. Beyond bolstering their market dominance, the deal unlocks opportunities to put the Direct Line transformation on the fast track, while capitalizing on the efficiency gains that come with increased scale. It’s a bold move that could turn out to be a gift that keeps on giving.”
