Insurance Australia Group's (IAG) shares tumbled after rival QBE Insurance Group boosted its takeover bid for the company.
Sydney-based QBE officially raised its proposal yesterday to 0.145 of its shares plus 90c cash for each IAG share.
The offer is up from 0.142 of QBE shares and 70c cash per IAG share.
The announcement came after the two groups held confidential talks late on May 16.
The sweetened deal valued IAG at $8.7 billion or $4.60 a share, a QBE statement to the Australian Securities Exchange (ASX) said.
Sydney-based IAG's stock price fell 23c or 5.2 per cent to $4.20 in trading yesterday.
"QBE considers its final proposal is very fair and reasonable given IAG's declining profitability in the past three years and the recent profit downgrade," QBE chief executive Frank O'Halloran said.
"The recent rise in QBE's share price means that our final proposal still meets QBE's acquisition criteria including earnings per share accretive in year one."
The IAG board of directors will meet today in New Zealand and submit an announcement to QBE's proposal, an IAG statement to the ASX said.
IAG's initial reaction to the offer was that it "fell short of fair value".
QBE made its first approach to IAG on April 10.
If the deal is successful, QBE would inherit a company which underwrites $7.4 billion of insurance premiums per year, has nearly $1 trillion of property insured, but has had three consecutive years of declining profit.
IAG, owner of the NRMA brand, reported a net profit of $110 million for the six-months to December 2007, a 68.1 per cent plunge from the prior comparative period.
In contrast, QBE posted a net profit of $1.9 billion for the year ended December 2007, a 30 per cent surge from the prior comparative period.
QBE's shares closed down 15c or 60 per cent to $25.40 in trading yesterday.
