BANCO Santander SA, Spain's biggest bank, agreed yesterday to acquire beleaguered UK mortgage lender Alliance & Leicester Plc for 1.26 billion pounds (US$2.6 billion) after walking away when the price was higher.

Alliance & Leicester rose as much as 54 percent, the most since the company went public in 1997, after Santander said it will provide 1 billion pounds of capital in the takeover of the Leicester, England-based bank. The all-stock offer of 299 pence a share amounts to 317 pence, or 1.33 billion pounds, including the half-year dividend, Santander said in a statement.

Emilio Botin, 73, is buying Alliance & Leicester after making at least US$60 billion of acquisitions from Brazil to Mexico since he became Santander chairman in 1985. The takeovers included Abbey National, the UK's second-biggest mortgage lender, for 9.2 billion pounds in 2004. Santander plans to reduce British assets by as much as 30 billion pounds as it combines Abbey and Alliance & Leicester amid the worst housing market in more than 15 years.

"They've shown with Abbey that they can turn a business round in the UK," Piers Hillier, the London-based head of European equities at WestLB Mellon Asset Management who manages 6 billion euros, including Santander shares, told Bloomberg News. "If they buy Alliance & Leicester at this price, it's a great deal for Santander."

Alliance & Leicester rose 98.50 pence to 317.75 pence at noon in London, valuing the bank at 1.34 billion pounds. Credit Agricole SA, France's biggest bank, dropped a bid two years ago to buy Alliance & Leicester when its market value was 5.2 billion pounds.

Botin said on February 7 the bank wouldn't bid for Alliance & Leicester after looking at its books earlier this year. The price Santander offered yesterday is 46 percent below the UK lender's price of 588 pence price on February 7.

Alliance & Leicester CEO David Bennett pulled back lending this year to prevent a plunge in earnings at the bank, which gets more than half its funding from wholesale markets.

"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," Alliance & Leicester acting Chairman Roy Brown said in a statement yesterday. "The proposal from Santander represents value for shareholders, and the combination of Alliance & Leicester with Santander's UK operations is an excellent fit."

Santander rose 0.7 percent to 11.31 euros in Madrid, giving the bank a market value of 70.2 billion euros (US$111 billion), the second-largest in Europe after London-based HSBC Holdings Plc.

Abbey and Alliance & Leicester combined will have 959 branches and 7.6 percent of UK market, Santander said. The bank said it can cut costs by more than 180 million pounds in Britain by the end of 2011.

Santander has had no losses related directly to the collapse of the United States subprime market.