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agreed to acquire San Francisco-based thrift

Golden State Bancorp

(GSB) - Get Report

for $5.8 billion in cash and stock in a bid to increase its retail presence on the West Coast.

The financial services company said Tuesday it will pay about $16.40 in cash and 0.5234 Citigroup shares for each share of Golden State, the parent company of California Federal Bank. Golden State shareholders can elect to receive Citigroup common stock or cash, "subject to certain limitations," according to a press release.

"The acquisition of Golden State marks an important step in our efforts to increase Citigroup's retail distribution franchise in the U.S., and in particular significantly expand the scope and breadth of our services in California and Nevada," Citigroup CEO Sanford Weill said in a prepared statement.

The agreement still requires approval by regulators and Golden State shareholders, but Citigroup said it has already won the favor of stockholders who own about 32% of Golden State. Citigroup said the transaction, which will add some 1.5 million new customers in California and Nevada, should close in the fourth quarter. The company expects the deal to add to earnings in the first full year after the acquisition closes.

The transaction will make Citigroup the fourth-largest institution in terms of deposits in California, with more than 400 branches. In Nevada, the bank will be the third-largest in terms of deposits, with 21 branches. The acquisition will also boost Citigroup's piece of the national prime mortgage business, where it will jump to seventh from 10th in originations and to sixth from ninth in servicing.

Speculation that Citigroup would buy the bank has been growing since February, when Sanford Bernstein analyst Jonathon Gray said Golden State, which holds about $55 billion in assets, would make a good acquisition target for either Citigroup or

Wells Fargo

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. Citigroup had discusssed buying a U.S. bank, while Golden State owners Ron Perelman and Gerald Ford (not the former president) had expressed interest in selling the thrift.

Shares of Golden State have risen 5% to $36.50 since last Friday's close, after rumors that a deal was imminent surfaced. Citigroup shares have fallen 3% since the end of the session Friday to close at $45.26.