British bank Abbey National has approved a US$16.4-billion takeover proposal from Spain’s biggest bank, Santander Central Hispano.

Abbey, Britain’s sixth-largest bank and second-biggest mortgage lender, said the combined cash and shares offer valued Abbey shares at 603 pence, or 8.9 billion pounds (US$16.4 billion) in total. It said the offer represented a premium for Abbey shareholders of 28.6%.

Abbey said the takeover would create the world’s 10th-largest bank by market capitalization.

Under the offer, which needs shareholder approval, Abbey shareholders would receive one new Santander share for every Abbey share, plus 31 pence (US57¢ per share.

Santander believes earnings before tax will increase by 560 million euros (US$696 million) by the third year after the takeover, thanks to cost and revenue synergies, Abbey said.

Abbey has a market capitalization of 7.2 billion British pounds (US$13.2 billion).

In 2002, Abbey rejected a takeover approach from the Bank of Ireland, Ireland’s biggest bank, saying it was not in the best interests of shareholders. That year, Australia’s largest bank, National Australia Bank Ltd., said it approached Abbey about a possible takeover but the talks ended without a deal.

Since then, Royal Bank of Scotland executives have said they would like to buy Abbey but they didn’t believe regulators would permit the takeover.

Abbey chief executive Luqman Arnold has said he expects a “substantial improvement” in the bank’s performance this year as a result of the turnaround program. Changes have included its rebranding as just Abbey and a drive to rid its products of financial jargon.

Abbey employed about 25,900 people at the end of last year and it has some 1.8 million shareholders.