Northgate also announced on Friday the immediate departure of its chief executive, Kevin Bradshaw, who will be replaced by Redde's CEO Martin Ward when the deal closes. Northgate did not give a reason for Bradshaw leaving.

"The combination will create a champion automotive services business with scale, reach and resources to provide mobility solutions to a broad customer base," said Northgate's non-executive chairwoman Avril Palmer-Baunack.

At 1020 GMT, shares in Darlington, northeast England-based Northgate were down 5.6% at 330.5 pence, partly due to the planned issuance of new shares. Northgate also reported a 14% drop in first-half profit. Redde shares were up 3.5%.

Under the deal, Redde shareholders will get 0.3669 new Northgate shares for each share held. That translates to 128.4 pence per share, a premium of 18% to the stock's Thursday close.

Palmer-Baunack took over as chairwoman in August, after Northgate removed her predecessor following months of pressure from activist investor Cyrstal Amber calling for him to go.

After closure of the deal, Northgate shareholders will own 54% of the combined company, while 46% will be held by Redde shareholders, the companies said.

Northgate, which operates in the United Kingdom, Ireland and Spain with a fleet of around 100,000 vehicles, will add Redde's fleet of about 7,000 vehicles and have access to 50,000 more though its rental partnerships.

Ward has led Redde, formerly known as Helphire, for the last 14 years. The company offers a number of accident management services, including vehicle replacement, repair and full claims-handling assistance.

Northgate said it expected the merger to generate pretax cost savings of at least 10 million pounds per annum, with revenue synergies expected from the combined group's ability to cross-sell products and services to customers.

J.P. Morgan Cazenove was the sole financial adviser to Redde. Goldman Sachs and Barclays jointly advised Northgate.

By Yadarisa Shabong