Alliance & Leicester will be taken over by Spanish banking giant Santander after shareholders today voted in favour of the acquisition.

It means the beleaguered British bank, whose share price has plummeted in the past year, will become a wholly owned subsidiary of Banco Santander from October 10 2008, subject to High Court approval.

At an Extraordinary General Meeting of shareholders, held today in Birmingham, 84.18 per cent of shareholders voted in favour of the acquisition. It means Alliance & Leicester (A&L) will now be merged with Abbey, which Santander bought in 2004.

Roy Brown, Acting Chairman of Alliance & Leicester, said: "We welcome our shareholders’ approval of the offer from Santander, which was unanimously recommended by the Board of Alliance & Leicester.

“The economic outlook and continuing uncertainty in financial markets have reinforced the Board's view that this transaction is in the best interests of shareholders, customers and other stakeholders.”

A&L, which offers current accounts, savings, loans and mortgages, says that existing customers will remain unaffected by the takeover. No decision has been made on a new brand name, but A&L customers will see Santander branding on correspondence from the bank.

Savers with money in both A&L and Abbey will continue to receive the same levels of protection under the Financial Services Compensation Scheme. This protects up to £35,000 worth of savers’ deposits if a bank goes bust, but the limit normally applies to financial groups and not their individual brands.

Halifax, Bank of Scotland, Birmingham Midshires and Intelligent Finance, for example, are all part of the same group and are registered with the FSA under the name of Bank of Scotland. Savers are covered only for one £35,000 even though the brands appear seperate.

However, A&L is becoming a subsidiary of Santander, which means it is retaining its separate banking licence. Deposits of up to £35,000 with A&L and £35,000 with Abbey remain protected.

Alliance & Leicester’s 500,000 shareholders now have until Friday 10 October to sell their shares, if they want to avoid the complications of owning Spanish investments.

Santander has offered A&L shareholders one Santander share for every three A&L shares. In addition, shareholders will receive an interim dividend of 18p per A&L share on October 6. This means that Santander is effectively offering 317p per A&L share - 44 per cent more than A&L's 219p closing price on July 11, the day before the offer was made.

Gavin Oldham of The Share Centre, a stockbroker, said: “If shareholders choose not to sell their shares the taxation arrangements include an 18 per cent charge on Santander dividends, which can only count towards your UK tax bill if a special Spanish tax form is submitted and a full tax return is made to the HMRC.

“Shareholders will also have to make an obligatory submission of the special Spanish tax form within a month of selling Santander shares, failing which you could be fined €100 or more”.

Although many investors were reported to feel short-changed by the deal, given that A&L shares were worth £12 last year but are now worth less than £3, the buy out was seen as the bank’s best hope during the economic turmoil – a view reinforced by yesterday’s collapse of US investment bank Lehman Brothers.

Today's announcement comes after Nationwide, Britain's biggest building society, announced last week it was taking over the Derbyshire and Cheshire building societies.