Aviva has agreed a deal to buy rival company Direct Line for £3.7bn ahead of a Christmas Day deadline.
The insurance firm announced the agreement with its smaller competitor a few weeks after a £3.3bn bid was turned down in November.
A deal for the two firms would make them a force in motor insurance, estimated to cover more than 20% of the UK market.
Aviva’s chief executive Amanda Blanc welcomed the deal as “excellent news”.
“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.”
The announcement was made days after controversial billionaire Elon Musk hit out at Ms Blanc’s reported approach to signing off on senior appointments of white men to improve diversity.
Over the next few days, the company’s share price fell slightly – although it was already dipping before Mr Musk’s remarks.
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.
The merger is due to be completed in the middle of next year, after shareholders vote on the deal in March.
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Direct Line has struggled in recent years and announced last month it will axe 550 jobs and make cuts worth £100m.
But chief executive Adam Winslow said the company is an “excellent business, home to many well-loved insurance brands, and this year we have made fast progress on our turnaround strategy”.
“Bringing Direct Line and Aviva together offers the opportunity to create a strengthened and enlarged business,” he added.
“In a highly competitive UK general insurance marketplace, the combined entity will be very well placed to deliver for its customers.”