Spanish Bank Buying Sovereign

Banco Santander SA, Madrid, has agreed to acquire the remaining 75.66% of Sovereign Bancorp Inc., Philadelphia, it does not already own. Santander will pay $1.9 billion or $3.81 per share; for the 19.9% stake in Sovereign it purchased in 2005, Santander paid $2.4 billion (it grew the stake to just under 25% through open market purchases). Santander purchased the stake in a controversial three-way transaction that allowed Sovereign to acquire Independence Community Bancorp, Brooklyn, N.Y. An opponent of that transaction was Relational Investors LLC, which now owns 8.9% of Sovereign. Relational will vote in favor of this deal. Ralph Whitworth of Relational, who is also the chairman of Sovereign's capital and finance committee, said "we believe this is the right transaction at the right time for Sovereign. We considered our options and this transaction very carefully and believe it provides stability and upside potential for Sovereign, its shareholders, customers, employees and other stakeholders." After the deal was announced, Sovereign revealed it will have a third quarter net loss of $982 million (-$1.48 per share), driven by impairment on Fannie Mae/Freddie Mac preferred stock of $575 million and a $602 million loss on the sale of its collateralized debt obligation portfolio. Santander has a U.S. banking and mortgage presence through a majority owned unit in Puerto Rico.