The Berlin city government will sell a controlling stake in Landesbank Berlin (LBB) to Germany's DSGV savings bank association for a total of 5.35 billion euros ($7.13 billion), DSGV said on Friday.
The association said in a statement it would pay 4.475 billion euros for an 81% stake in LBB, including the costs associated with the sale, and a further 870 million euros to cover obligations to the city-state of Berlin.
DSGV said the deal would raise its stake in LBB to 91.6% and added that it would make a public offer for the rest of the shares.
The deal would be back-dated to take effect from Jan. 1, 2007, once approved by the state parliament and regulators.
The DSGV had made clear during the five-month bidding process that it was prepared to outbid rivals to keep Landesbank Berlin and its associated savings bank Berliner Sparkasse safely in the fold of the state-sector banks.
Berlin's finance minister, Thilo Sarrazin, told a Berlin news conference that DSGV had made the highest offer by far for the bank.
DSGV said it had no plans to break up LBB, which employs nearly 8,000 people.
Its bid trumped Commerzbank's effort to buy LBB, which would have set a precedent for a commercial bank buying a state-sector rival, had it succeeded.
LBB shares rose 5.7% to 6.44 euros. Commerzbank shares rose 2.3% percent to 36.30 euros.