This comes after A&L released a stockmarket statement this morning revealing it was at an advanced stage of discussions regarding a possible offer at an offer price of 299p per share.
The move will give Santander a huge increase in its share of the UK mortgage market.
It expects the acquisition will be completed in October 2008. The acquisition is conditional on a regulatory clearance from the FSA and the Bank of Spain.
The Spanish banking giant believes the acquisition of A&L will lead to annualised cost savings of more than £180m before tax by the end of 2011.
But it says it will need to provide additional capital of £1bn to A&L. This capital will be allocated to balance sheet strengthening and integration costs.
To address potential liquidity risks, the firm says it intends to reduce the assets of the combined A&L and Abbey by between £20bn and £30bn over the course of two years.
Santander says under the terms of the acquisition, A&L shareholders will receive one Santander share for every three A&L shares.
Prior to the effective date, A&L intends to declare an interim dividend of 18p in cash per A&L share.
The acquisition values each A&L share at 299p and the existing issued share capital of A&L at approximately £1,259bn.
Santander says the purchase will allow the combination of A&L and Abbey’s complementary business operations, enhancing the competitive positioning of the products and services offered by the group, benefiting customers.
It believes that the combined group should also benefit from increased efficiency and should, over time, enable A&L’s cost of funding to be reduced from the current high levels.
Santander chairman Emilio Botin says: “The acquisition of A&L will be a significant step in the development of Santander’s UK business. The transaction meets Santander’s return on investment target as well as being accretive for Santander shareholders. 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.”