Deutsche Bank has confirmed it is buying a 29.75% stake in Germany's biggest retail bank Postbank for 2.79bn euros ($3.9bn; £2.2bn).
Worth 57.25 euros a share - the offer is greater than the firm's share price, which ended at 47.51 euros on Thursday.
The news hit Postbank's shares as Deutsche Bank said it would have to raise 2bn euros through a share placing to fund the purchase.
It will allow Deutsche Bank to expand its presence in consumer banking.
"For relatively little capital, we have secured the dominant position in Europe's biggest economy forever," said Deutsche Bank chief executive Josef Ackermann.
But the complicated structure of the deal left analysts unhappy.
"This is bad," said Dirk Becker, an analyst at Landsbanki Kepler.
"I don't know why Deutsche are doing it in the first place; it doesn't fit. I don't know why they are doing it for this price. It all seems to have been pretty spontaneous."
Complicated deal
It was thought that Deutsche Bank could not afford to buy all the shares owned by Deutsche Post straight away because of financial problems due to credit crunch related write-downs.
But as part of the deal, it has secured the option to buy additional shares for 55 euros at a later date.
Meanwhile, Deutsche Post has the option of forcing Deutsche Bank to buy its remaining 20.25% stake plus one share in Postbank, but at a lower price of 42.80 euros per share.
It is hoped the deal, dependent on regulatory approval, will complete in the first quarter of 2009.
Deutsche Bank said the move would not result in the closure of any branches or job cuts.
This is unlike the other major consolidation in Germany banking - Commerzbank's 9.8bn euro takeover of Dresdner - which will result in about 9,000 job losses.
'Highly complementary'
Postbank has Germany's biggest branch network with almost 15 millions customers.
The acquisition will allow Deutsche Bank to almost double its German client base, which currently stands at about 10 million.
"Deutsche Bank's and Postbank's service offering is highly complementary with attractive opportunities for cross-selling of financial products," a statement released by Deutsche Bank said.
Postbank's shares tumbled as much as 12% after the announcement, but clawed back some of those losses in the course of the session to trade down almost 7% at 42.6 euros.
Deutsche Bank's shares also fell, down 3.5%.
Shares in post office operator Deutsche Post climbed 3% as investors looked forward to a windfall payout.
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