Sovereign Bancorp ( SOV) reached an agreement to acquire First Essex ( FESX), a bank holding company based in Andover, Mass., for about $400 million.

First Essex operates 20 banking offices in two counties in Massachusetts and three counties in southern New Hampshire.

Shareholders of First Essex will be able to receive $48 in cash, 2.9250 Sovereign shares or a combination of the two, depending on allocation procedures that will be designed to ensure that half of the First Essex shares will be exchanged for stock and half swapped for cash.

The merger requires the approval of various regulatory agencies and First Essex shareholders. Sovereign, based in Philadelphia, expects to close the acquisition in the first quarter of 2004.

Sovereign's shares lost 74 cents, or 4.5%, to $15.68. First Essex rose $9.63, or 26%, to $46.88.

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