LOS ANGELES (Reuters) - Spain's Banco Santander SA, the largest euro zone bank, said on Monday it will buy U.S.-based savings and loan Sovereign Bancorp Inc in a stock-for-stock transaction worth $1.9 billion.
The transaction is expected to close in the first quarter of 2009. It calls for a swap of 0.2924 Banco SANTANDER (SAN.MC)American depository shares for every share of Sovereign common stock.
At Friday's prices, the deal has an aggregate value of $3.81 per share.
Shares of Sovereign closed down 3.4 percent at $3.68 Monday on the New York Stock Exchange.
In 2006, Santander paid $3.3 billion for 24.9 percent of Sovereign, becoming the savings and loan's largest shareholder. Under that agreement, Santander could not bid for the remaining stake in Sovereign at market value until June 2009.
But like most U.S. banks, Sovereign has been hit by toxic debts emerging from the country's subprime crisis. It reported a 14 percent drop in net profit in the second quarter, to $127.4 million.
A committee of independent directors on Sovereign's capital and finance committee requested that Santander consider purchasing the 75.65 percent that it does not already own. The committee recommended the deal to its board of directors.
The deal has been approved by Santander's executive committee and by the non-Santander directors of Sovereign.
Santander said the transaction meets its strategic criteria for acquisitions and will significantly enhance its geographic footprint and result in a net profit for Sovereign of $750 million in 2011.
The transaction needs bank regulatory approvals in the United States and Spain and approval by both companies' shareholders.
Relational Investors LLC has agreed to vote its 8.9 percent of Sovereign shares in favor of the deal, as have all non-Santander directors.
Banco Santander will call an extraordinary general meeting of the bank's shareholders to approve a capital increase and issuance of about 147 million new shares, or about 2 percent of Banco Santander's capital.
(Reporting by Gina Keating; Editing by Bernard Orr)
