Former building societies Abbey and Alliance & Leicester are to be merged under a £1.26 billion deal.
Abbey’s parent, Spanish banking giant Santander, plans to merge the two companies into a business with 959 UK branches and a share of more than 8% of the savings and personal loans market.
It has agreed the takeover with Alliance & Leicester’s board and the deal should be completed in October – provided no rival offer emerges.
Santander will also pump around £1 billion into Alliance & Leicester to shore up the group’s finances, which have been rocked by the impact of the credit crunch in the past year.
Alliance & Leicester, which has more than 7,000 staff, can trace its origins back to 1852 and the formation of the Leicester Permanent Benefit Society.
It demutualised in 1997 and joined the FTSE 100 Index but dropped out of the top tier earlier this year as shares tumbled on concerns over the strength of its finances to ride out the credit storm.
Alliance & Leicester acting chairman, Roy Brown, said the board had recommended the offer ‘after careful consideration’.
He said: ‘The board is acutely aware of the significant external risks presented by the deterioration in economic conditions and the continuing turbulence in the financial markets.
‘Against that background, the proposal from Santander represents value for shareholders, and the combination of Alliance & Leicester with Santander’s UK operations is an excellent fit.’
Santander – the world’s sixth biggest bank by market capitalisation and the biggest in Europe – bought Abbey in 2004. It expects to make annual savings of more than £180 million by the end of 2011 through the combination of back office functions.
Alliance & Leicester has more than 5.5 million personal customers and at the end of April held £23.6 billion in deposits.
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