Canada's Dominion Diamond Corp (DDC.TO) on Monday agreed to a sweetened takeover offer of US$1.2 billion from U.S. billionaire Dennis Washington that will take private the world's third biggest diamond company by market value.

U.S.-listed shares of Dominion leapt four per cent to US$14.04, while its Toronto-listed shares rose nearly five per cent, after Dominion said Washington Companies will acquire all of shares for US$14.25 per share in cash.

The offer price is five per cent higher than the Missoula, Montana-based company's March 19 offer of US$13.50 per share, which Dominion rejected as too low.

Reuters reported on Friday that Dominion was in advanced and friendly talks with Washington on a sweetened cash takeover bid.

M&G Investment Management, Dominion's biggest shareholder with a 6.2-per-cent stake, supports the transaction, M&G fund manager Jamie Horvat said.

"Management and the board did a very good job of maximizing shareholder value," Horvat said in an interview.

Washington Companies, founded by industrialist and entrepreneur Washington, has mining, industrial and transportation businesses across North America.

Dominion, which owns a majority stake in the Ekati mine and minority share of the nearby Diavik mine in Canada's Northwest Territories, launched a sales process in March following the initial unsolicited approach from Washington.

A competing bid for Dominion is unlikely other than from global miner Rio Tinto, Dominion's joint venture partner at Diavik, BMO analyst Edward Sterck said.

"Rio Tinto's involvement cannot be ruled out, but after exiting a period of asset shedding, management may feel that for a first acquisition to be in diamonds may not be digestible for investors," Sterck said in a client note.

Rio Tinto could not immediately be reached for comment.

Washington had an "initial discussion" with Rio before it made its sweetened offer, Washington Companies President Lawrence Simkins said in an interview. Those talks will now resume, he added.

“We are excited to work with their team to extend the mine life of the Ekati mine and continue partnering with Rio Tinto in the operation of the Diavik mine, while maintaining long-term employment for Dominion employees,” Simkins said in a statement. 

Washington will keep Dominion's headquarters in Canada and appoint a new chief executive.

The proposed transaction is subject to Canadian regulatory approvals. Simkins said talks with Ottawa would start on Monday.

The deal, which is expected to close in the fourth quarter, also requires approval from more than two-thirds of Dominion shareholders.

Washington's higher offer came after the Canadian Pension Plan Investment Board, the country's biggest pension fund manager, was reported to be considering a bid for Dominion.

Canadian small producer Stornoway Diamond Corp had also held merger talks with Dominion earlier this year, Reuters reported in March, citing sources.

- with files from BNN