New England banking continued to take on an international flavor yesterday as Sovereign Bancorp.announced that it is selling a minority stake to Spanish banking giant Banco Santander Central Hispano SA.

Santander, the ninth-largest bank in the world, will pay $2.4 billion for the 20-percent stake in Sovereign, the Pennsylvania-based holding company for Sovereign Bank, the third-largest bank operating in Rhode Island and New England as a whole.

Sovereign, in turn, will use the proceeds to help buy Independence Community Bank Corp. of Brooklyn, N.Y., for $3.6 billion.

The Santander investment in Sovereign reflects the global consolidation of banking taking place in the industry. In New England, Citizens Financial Group of Providence is owned by The Royal Bank of Scotland Group, while TD Banknorth of Portland, Maine, is owned by Canada's TD Bank Financial Group.

The deal announced late yesterday gives Santander a chance to boost its stake in Sovereign to 25 percent and buy Sovereign outright after two years.

"By partnering with Santander, we have enhanced our organization for our customers, team members and the citizens of our communities for years to come, while continuing to create above-average shareholder value," Sovereign chairman, president and chief executive officer Jay S. Sidhu said in a statement.

The Independence purchase will give Sovereign an entry into the New York banking market with 123 branches in and around New York City and next door in New Jersey.

It will fill a gap in Sovereign's current market between its mid-Atlantic and New England operations. Based in Wyomissing, Pa., Sovereign entered New England in 2000 when it purchased 281 bank branches spun off in the 1999 Fleet-BankBoston merger.

Yesterday's three-way deal represents a bold move for Sidhu at a time when he has come under intense criticism from his company's largest shareholder.

Relational Investors LLC, a San Diego investment firm, is seeking to elect two of its principals to the Sovereign board on a platform of improving what it calls a "lack of accountability and serious conflicts of interest of the board."

The firm, led by activist shareholder Ralph V. Whitworth, argues that Sovereign's stock price has been "severely discounted" for 10 years.

Whitworth's firm blasted yesterday's deal in statement: "Relational is astounded by this expensive series of transactions."

The firm charged that Sovereign "will pay what we believe is an inordinate price for assets that are riskier than Sovereign's" and that they will dilute earnings compared with a share repurchase by the company.

"These deals will not deter us and only strengthen our resolve," Whitworth said in the statement.

With yesterday's deal, Santander will supplant Relational Investors as Sovereign's largest shareholder and may help Sidhu fend off Relational's proxy challenge.

The $27 a share Santander will pay for 90 million Sovereign shares represents a 24-percent premium over Sovereign's 20-day average price and a 16-percent gain over Friday's closing price of $23.37.

Shares of both Sovereign and Independence did not trade yesterday on Wall Street after news of the impending deal leaked out early in the morning. Santander officials confirmed the deal to reporters in London before it was formally announced late in the afternoon.

Joseph P. Campanelli, Sovereign's vice chairman and New England CEO, said what Santander is paying demonstrates Sovereign's value and "allows us to continue to grow in a consolidating industry."

Without Santander's investment, he said, Sovereign would not have been able to buy Independence. "We wouldn't have done it, quite candidly," Campanelli said.

Speaking before the details of the deal were announced, one analyst who follows Sovereign predicted the company's battle with Relational Investors could be intensified by the Santander-Independence transaction.

"The activist shareholders will probably fight this and come out and say this is bad for the company," Lee Calfo of Cohen Bros. & Co. in Philadelphia said.

Sidhu's critics may say "the best way to make money today is to sell the whole company," said Calfo, who owns shares of Sovereign himself.

Campanelli countered: "It depends on whether you want an immediate auction, or you're looking for long-term gain." He said Sovereign's executives have a "game plan" to move the company's stock past $30 a share and pointed to the prospect of Santander taking an even bigger stake in Sovereign.

The agreement gives Santander the right to negotiate a 100-percent purchase of Sovereign after two years at a minimum of $40 a share for 12 months and then at market-driven prices over the following 24 months.

With its 20-percent stake, Santander will gain the right to appoint two of Sovereign's board members. Sidhu, in turn, will gain a seat on the Santander board.

Based in Madrid and founded in 1857, Santander operates primarily in Europe and Latin America. Its U.S. operations include a private bank in Miami and an investment banking operation in New York.

Last year, Santander bought Great Britain's Abbey National bank and at one time owned a stake in Royal Bank of Scotland. It is headed by chairman Emilio Botin.

For Independence, Sovereign will pay $42 a share, a 29-percent premium over its Friday closing price of $32.45. Independence shares opened the year in that range and have been on a steady decline since then, falling 24 percent.

Founded in 1850, Independence went public in 1998 and has grown beyond its Brooklyn roots through acquisitions.

It will bring $18.5 billion in assets to Sovereign. The combined bank will have more than $80 billion in assets, solidifying Sovereign's position as one of the country's 25 largest banks.

Campanelli, Sovereign's New England head, said he expects the company's New England employment base to increase as a result of the Independence purchase.

Contact David McPherson at dmcpherson [at] projo.com.