Federal regulators have approved the unorthodox purchase of Virginia's Home Bancorp by neighboring Essex Bancorp - a deal in which the acquiree is bailing out the acquirer.

The Office of Thrift Supervision, which regulates both companies, approved the deal on Tuesday. Regulatory lawyers had expressed doubt that the agency would approve the deal, viewing it as a last-ditch effort by a struggling company, Essex, to save itself from a takeover.

Essex officials could not be reached for comment. It could not be determined if any special conditions were put on the approval by the OTS.

Essex, based in Virginia Beach, plans to buy Norfolk-based Home for $22 million. The maneuver would allow Essex to count Home's considerable capital toward its own depleted capital base. Essex would pay in stock and warrants - not cash - giving Home Bancorp's coterie of owners effective control of the much larger Essex after three years.

The merger would allow Home's owners to benefit the most from the upside potential of an Essex recovery, while shielding them from potential liability should Essex fail.

For now, two of Home Bancorp's directors will join Essex's board.

Gene D. Ross, chief executive of Essex, said he expects the merger to close later this month.

"The merger should enable Essex to meet the minimum regulatory capital requirement, which will allow further leverage of capital and the adding of modest growth to take advantage of opportunities in the marketplace," Mr. Ross said in a statement.

Essex has been under OTS orders to raise its capital levels by at least $3 million. It has been struggling to recover from massive losses in the early 1990s.

In announcing the regulatory approval, though, the company said the deal is contingent on several factors. First, the deal and Essex's salvation is based on Home Bancorp's net assets being placed on Essex's books at fair market value. If third-party evaluators determine that Home's net asset value is not enough to cover Essex's capital deficiency, the deal is off.

In addition, the company said its planned redemption of a certain class of preferred stock on Wednesday will be delayed until the merger is consummated. Essex owes $1 million to the preferred stockholders, as part of a settlement to a class-action suit.

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