UPDATE 1-Sovereign Bancorp shareholders OK Santander merger

NEW YORK, Jan 28 (Reuters) - Sovereign Bancorp Inc SOV.N shareholders on Wednesday voted to approve the takeover of the largest U.S. savings and loan by Spain's Banco Santander SA (SAN.MC).

Ninety-six percent of Sovereign shareholders who voted were in favor of the roughly $1.6 billion merger, which is expected to close on Friday. Santander shareholders on Monday approved a capital increase to finance the purchase.

Shareholders of Philadelphia-based Sovereign are expected to receive 0.3206 of a Santander American depositary share (STD.N) for each of their shares. They may also receive ordinary Santander shares.

Following the merger, Hudson City Bancorp Inc (HCBK.O) of Paramus, New Jersey, would become the largest U.S. thrift.

Santander in 2006 spent $2.4 billion for a nearly 20 percent stake in Sovereign, in a transaction arranged by Sovereign's chief executive at the time, Jay Sidhu. The Spanish bank later boosted its stake to just under 25 percent.

Like many U.S. lenders, Sovereign struggled with too much debt. Sidhu was ousted in October 2006. His successor, Joseph Campanelli, was replaced in September 2008, and the Santander merger was announced two weeks later.

Sovereign operates about 750 branches in eight northeast and mid-Atlantic U.S. states, and ended September with about $77.3 billion of assets. (Reporting by Jonathan Stempel; Editing by Brian Moss)