Bloomberg News

LONDON - Barclays PLC, Britain's third-largest bank, has agreed to buy Woolwich PLC for $8.1 billion.

The deal would create the U.K.'s fourth-biggest mortgage lender even as competition erodes home loan profitability.

The offer is 31% higher than Woolwich's market value at the close of trading Tuesday, before the talks became public.

Buying Woolwich would more than satisfy Barclays' stated aim to double its portion of the $771 billion U.K. mortgage market.

It would also help Barclays extend its lead as the biggest U.K. Internet bank.

Still, by Friday its shares had fallen 5.6% since the discussions were announced, over concerns it is overpaying to expand in a crowded business.

If completed, the purchase is expected to boost Barclays' revenue by an annual $359 million in three years. The bank also expects to reduce costs by $225 million a year, as it cuts 1,000 jobs, shuts about 100 branches, and combines transaction processing.

Barclays, which would incur a restructuring charge of $225 million, has 1,728 U.K. branches. Woolwich has 412.

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