Westpac Banking Corp ( WBK) has reached a deal to acquire fellow Aussie bank St. George Bank Limited, a deal that will create Australia's largest financial services firm by market cap, according to the companies.

The all-stock deal values St. George at A$18.6 billion (US$17.5 billion), or A$33.10 a share, a premium of 28.5% to the closing price of St. George shares on May 9 in Australia. St. George shareholders will receive 1.31 Westpac shares for each St. George share and own 28.1% of the new entity. They will install three directors on the new board.

According to a joint press release, the deal will also create Australia's largest home lender, which will control a quarter of the Australian home loan market. The combined institution will also manage A$108 billion in funds. It will have 10 million customers and a double-A credit rating, providing greater access to funding,

"The best of each bank's product and service capabilities can be extended across customer segments, driving significant revenue growth," said Gail Kelly, Westpac's CEO, in the release.

The deal is still subject to a two-week due diligence period during which St. George is prohibited from seeking out competing bids. The deal must be approved by shareholders and regulators.

Westpac's American depositary shares, which trade in the U.S. on the NYSE, closed Tuesday down $3.61, or 3%, at $117.72.

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