UK-based bank Lloyds TSB has agreed to acquire the country's leading mortgage lender HBOS for GBP12.2 billion while the UK government has reportedly promised to rewrite competition laws to facilitate the deal. Under the terms of the agreement HBOS shareholders will receive 0.83 Lloyds TSB Shares for every one HBOS share.

Existing Lloyds TSB Shareholders will own approximately 56% of the issued share capital of Lloyds as enlarged by the acquisition and existing HBOS shareholders approximately 44%.

Lloyds TSB intends that new lending by the new combined bank for both UK mortgages and Small and medium enterprises (SMEs) will continue at least at current levels and will expand as market conditions improve.

The enlarged group will continue to use The Mound as its Scottish headquarters. In addition the management focus is to keep jobs in Scotland. Victor Blank, chairman of Lloyds, will be the chairman and Eric Daniels will be the CEO of the enlarged group.

The acquisition will be implemented by means of a scheme of arrangement under sections 895 to 899 of the Companies Act and the scheme document will be posted by November 2008 and that, subject to the satisfaction, or where relevant waiver, of all relevant conditions, the scheme will become effective and the acquisition completed at the end of 2008 or early 2009.

The acquisition is conditional on, among other things, certain approvals by Lloyds TSB shareholders and HBOS shareholders and the sanction of the scheme by the court. Merger control approvals and regulatory clearances from the Financial Services Authority will also need to be obtained.

Mr Blank said: This will be a unique opportunity to accelerate and extend our strategy and create the UK’s leading financial services group. Lloyds TSB and HBOS’s outstanding franchise will enable it to service more of its customers needs with the balance sheet strength to prosper in challenging markets. This is a good deal for customers and shareholders.

Dennis Stevenson, chairman of HBOS, added: This is the right transaction for HBOS and its shareholders. Against the backdrop of the very high levels of volatility our industry is experiencing, the combined group will be one of the strongest players in the UK financial services sector. In addition, the combined group will have excellent brands and a very powerful franchise. We are recommending our shareholders vote for this transaction.