Bloomberg News

LONDON — Halifax Group PLC and Bank of Scotland have agreed to a $15.1 billion merger that would form the United Kingdom’s fourth-largest bank by assets.

Investors in Halifax, Britain’s largest mortgage lender, and Bank Scotland, the seventh-largest U.K. bank by assets, are to get one share of the new company, HBOS PLC, for each share they own, the companies said in a conference call Friday. Halifax shareholders are to own 63% of the post-merger company.

Bank of Scotland, led by chief executive Peter Burt, has failed to combine with rivals in two previous attempts during the past 18 months. Pairing with Halifax would help the two banks compete with Barclays PLC and Lloyds TSB Group PLC, both of which are expanding through acquisitions.

British banks are combining “because it’s one certain way that you can take out costs and generate earnings growth,” said Robert Talbut, head of worldwide equities at Royal and Sun Alliance Investments.

The merger of Bank of Scotland and Halifax, which is headed by chief executive James Crosby, would produce cost cuts of $438 million through the elimination of about 2,000 jobs, or 3% of the joint payroll, in three years, the companies said. The transaction would boost revenue by about $452 million.

“Together, we’ll be able to grow faster than either bank could achieve on its own,” Mr. Burt said in the conference call.

The deal also will give the banks “the scale and ability” to expand outside the United Kingdom, Mr. Burt later said at a press conference. He said the banks have no immediate plans to make purchases, adding jokingly that integration would “keep us occupied for a few weeks.”

The savings “are at the top end” of expectations, said Philip Small, a fund manager at Aegon Asset Management in Edinburgh, which owns a stake in Bank of Scotland.

Bank of Scotland’s Mr. Burt, 57, would be the post-merger company’s executive deputy chairman, and Halifax’s Mr. Crosby, 45, would be chief executive. Halifax chairman Dennis Stevenson would be the new company’s chairman. Mr. Burt’s responsibilities would include overseeing the integration of the banks.

The value of the transaction is based on the market price of the smaller company, Bank of Scotland.

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