Shares in Friends Life surged after plans for a mega-merger valuing the insurance and pensions provider at more than £5.5bn were disclosed.
It was the first chance for investors to give their verdict on plans by Aviva to swallow up the firm after details were disclosed on Friday - with Friends saying it was ready to recommend it to shareholders.
The stock climbed 5% following the announcement, which would place a 15% premium on the smaller company's share value at the close of last week. Aviva shares fell 5%.
Analysts at Bernstein said: "We think this is a good deal for shareholders of both Friends Life and Aviva but, on the face of it, a better deal for Friends."
The merger would create a leading insurance, savings and asset management firm with 16 million UK customers - but there has been speculation that the tie-up will mean 2,000 jobs being axed. Aviva, which employs around 28,000 staff worldwide including 12,000 in the UK, has until December 19 to make a firm offer.
Friends Life employs 3,500 staff largely in offices in London, Manchester, Bristol and Salisbury. Aviva employs its UK staff in York, Norwich, Sheffield and Glasgow.
Under the terms of the proposed all-share offer, Friends Life shareholders would own about 26% of the group.
Shore Capital analyst Eamonn Flanagan said the deal would draw Aviva, which operates in 15 countries, closer to the UK pensions market which has been thrown into uncertainty following Budget changes to pensions annuity rules.
He said the deal looked like "a rights issue in disguise", with Aviva buying access to the £2bn a year Friends Life generates from its UK pensions business - with existing Aviva investors seeing their shareholding diluted.