WYOMISSING, Pa. -- Sovereign Bancorp Inc. said Tuesday that it has renewed acquisition discussions with Flagship Financial Corp. of Jenkintown, Pa.

Sovereign, which operates in Princeton, N.J., and five southeastern Pennsylvania counties but not Philadelphia, has proposed paying $11.50 for each share of Flagship's common stock.

The payment would be $8 in Sovereign common stock and $3.50 in cash.

Sovereign's approach was the third it has made this year to Flagship, which has offices in four Pennsylvania counties, including Philadelphia.

Earlier talks were broken off in August. Together, the companies would have $2.7 billion in assets and 51 offices.

No Commitment from Flagship

Flagship, the parent of two savings institutions with 21 offices and $900 million in combined assets, agreed to evaluate the offer. But "no assurances can be given that we will be able to reach a definitive agreement," said Raymond W. McConnell, chairman and acting chief executive.

Both companies' share prices rose $1.125 by Tuesday afternoon -- Sovereign's to $9.25 and Flagship's to $9.75 -- then fell 75 cents each.

Sally McIver of SNL Securities in Charlottesville, Va., said the merged companies would likely offer stronger competition "if they can pull management together."

Jay Sidhu, president and chief executive officer of $1.8 billion-asset Sovereign, said a merger, "if done under the right terms," would benefit shareholders, customers, and employees of both institutions.

Due Diligence to Begin

Mr. McConnell agreed that "there are some very sound reasons for considering a combination."

While the Flagship board prefers to remain independent, shareholder value is the paramount concern, a spokesman said.

Sovereign said its offer is subject to a due diligence examination that will begin this week and to negotiation of a definitive agreement.

The Flagship spokesman said due diligence should not take long, given that much of the required information was prepared during the May-August talks.

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