The deal, worth £1.26billion, will offer existing Alliance & Leicester shareholders one Santander share for every three existing A&L; shares at a price of 299p per share.

The announcement came amid rumours the UK’s seventh largest lender was suffering at the hands of the credit crisis. Shares in A&L; had fallen significantly on the back of the Bradford & Bingley fiasco. As both lenders deal with the rocky buy-to-let mortgage market, it was assumed by many that A&L; would suffer the same fate as B&B; have.

However, the takeover bid has quashed all rumours of imminent failure and strengthened the bank’s reputation and position in the market. Santander already owns UK bank Abbey after a successful takeover four years ago.

As a joint venture it is thought that Abbey and A&L; will become Britain’s second largest mortgage lender after Halifax. However, the deal is not yet done and it is reported that A&L; shareholders are still holding out for a rival takeover bid due to the cut share price offered by Santander.

It is also being reported that the takeover will have a negative impact for consumers, despite the positive effects its announcement has had on the banking sector. Kevin Mountford, head of current accounts at moneysupermarket.com, said:

“While city types may be breathing a sigh of relief at the creation of a new powerhouse in UK banking, the proposed deal may not be such good news for consumers.

“Abbey and Alliance & Leicester have similar structures, making a merger desirable, but they have both been key players in driving competition. A&L;, in particular has long been regarded as the ‘terrier’ of the financial services industry.” he said, adding:

“This news also increases the likelihood of other small innovators being swallowed up by big institutions, potentially damaging competition further.”

© Fair Investment Company Ltd