Aviva has upgraded its offer for DLG from GBP2.50 to GBP2.75 / share, and the two parties have reached preliminary agreement. What''s next? Preliminary agreement at upgraded offer Aviva has increased its offer for DLG by 25p to a stated GBP2.75 / share, and the two parties have reached a preliminary agreement. The offer is composed of GBP1.297 of cash, and 0.2867 Aviva shares per DLG share, plus 5p of pre-close dividend for the DLG shareholders. The upgrade since last week''s GBP2.50 offer is largely driven by cash. We already had a pre-close final dividend of 4p in our DLG capital baseline, so we see this offer as closer to GBP2.70 adjusted for this. As we wrote in Talking telephone numbers, we saw a GBP2.65 offer as sufficiently accretive, and we see the agreed price as roughly in-line with that. Implications for funding and accretion We do not think the company needs to raise debt - but the new deal structure tips the leverage ratio over 30% on our calculations, and we think it is possible that the group pauses the buyback for one year to address this. On our estimates, the transaction is high single digit % accretive to EPS, c.2% more accretive than the equivalent return of capital to investors. On consensus'' more optimistic view of the DLG baseline, we estimate the accretion is c.4% better than returning capital. What''s next? The questions from here While a formal offer has not actually been made, we see limited impediments to getting the deal over the line, albeit we can''t completely rule out the possibility of an alternative bidder. The debate for Aviva shareholders from here is largely about the DLG earnings baseline, the level of synergies the group can achieve (we estimate c.GBP130m of operating synergies before tax, and c.GBP200m reduction in the SCR) as well as about the deserved multiple for Aviva post-transaction.