Mumbai: Italy''s UniCredit has agreed to buy smaller rival Capitalia for more than $29 billion in shares to create Europe''s second biggest bank.

The takeover would enable UniCredit, with a combined market capitalisation of more than $135 billion, to expand on its home turf. With new branches stretching from Sicily to eastern Europe, UniCredit would also remain Italy''s largest bank by market value.

The two boards have approved the takeover, the banks said in a joint statement issued after they won backing from a key group of investors controlling about 31 per cent of Capitalia.

UniCredit will pay 1.12 shares for each Capitalia share, valuing Capitalia at 8.41 euros a share or 21.83 billion euros ($29.47 billion).

Capitalia will appoint four members to UniCredit''s board but Dutch bank ABN AMRO, Capitalia''s largest shareholder and one-time suitor, will not be represented.

UniCredit would have a 16 per cent market share in Italy, nearer to the share of Intesa Sanpaolo, Europe''s biggest in terms of retail branches and market share, although smaller than UniCredit by market capitalisation.

The bank will have about 9,200 bank branches globally, 960 billion euros in total assets and 40 million customers from Italy to Russia. It will also rank second biggest in Germany and number one in eastern Europe.

Merrill Lynch advised UniCredit. Former Goldman Sachs banker Claudio Costamagna advised Capitalia, with Rothschild, Credit Suisse and Citigroup providing a fairness opinion to Capitalia.