Alliance & Leicester in £1.3bn takeover

Alliance & Leicester (A&L) has confirmed it is in an "advanced stage" of takeover talks.

Abbey-owner Banco Santander is offering a price of 299p a share - valuing the mortgage lender at £1.3 billion.

With a right to receive an interim dividend of 18p a share, the total value of the offer is at 317p a share.

Under the terms of the deal shareholders will offered one Santander Share for every three A&L shares.

Santander has made the offer with the intention of merging the two high street banks stating the deal will "deliver increased critical mass" for the firm in the UK market.

Emilio Botín, Santander chairman, said: "We are very pleased to be working with the management and employees of A&L as we seek to build with Abbey one of the leading franchises in the UK banking sector."

Roy Brown, acting A&L chairman, said: "The board has taken the decision to recommend the acquisition by Santander after careful consideration.

"However, 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 A&L with Santander's UK operations is an excellent fit."

The current slump in banking stocks in recent months has led to growth in interest in bids for smaller banks.

Gordon Brown has welcomed suggestions of a foreign buyer for Alliance & Leicester.

He told his monthly press briefing: "[A takeover could] benefit the UK economy. We are open to foreign investment in our financial and energy sectors."

Before the deal can go ahead clearance is needed from the banks' shareholders and UK regulators, that may query the effect on competition of two high street lenders merging.

The A&L share price rocked on the news, up 45.50 per cent, to 319p at 12:03 BST this morning.