IAG announced a few minutes ago it has agreed to purchase the insurance underwriting businesses of Wesfarmers for $1.845 billion.

The acquisition comprises Wesfarmers' underwriting companies trading under the WFI and Lumley Insurance brands, as well as a 10-year distribution agreement with Coles.

IAG MD Mike Wilkins says the acquisition is “a compelling strategic fit for IAG”.

"This is a unique opportunity, which is expected to deliver significant long-term value for IAG shareholders and unlock further growth potential for our businesses in Australia and New Zealand," he said.

The acquisition is expected to deliver modest earnings per share (EPS) accretion in its first full year of ownership, and at least 5% accretion in the second year (excluding integration costs and amortisation of identified intangibles).

The acquisition will be funded from a combination of ordinary equity, subordinated debt and internal funds. This includes a fully underwritten $1.2 billion institutional placement at $5.47 per share, a 4% discount to the closing IAG share price on the ASX on 13 December 2013.

More details in our regular bulletin this afternoon.