Spain's Santander is buying British bank Alliance & Leicester for 1.3 billion pounds in an agreed deal that will bulk up its existing UK bank Abbey.
Santander, Europe's second-biggest bank after HSBC, has long been considered a potential buyer of A&L, but has been able to secure a knockdown price after a collapse in its target's share price in the past year.
Santander said it was offering 1 of its shares for every three A&L shares, plus a cash dividend of 18 pence per share. The deal values A&L stock at 317p, compared with a 12-month high of 1,170 pence.
A&L shares soared 54 percent to 338 pence by 11 a.m. after Santander confirmed the deal, reflecting the prospect that a takeover battle could ensue.
Santander shares were down 0.2 percent at 11.20 euros.
Santander held talks with A&L late last year, sources have said, and analysts said it has the financial firepower to do a deal when many rivals are struggling with the credit crunch.
"It would make perfect sense. If we believe all the reports, before they were looking to buy at above 6 pounds," said Simon Maughan, analyst at MF Global. He said Santander could use a deal to drive through economies of scale to boost profitability at Abbey, which is low relative to its other operations.
