Western U.S. bank chain Zions Bancorp. (ZION) said on Wednesday that it was to buy Houston-based Amegy Bancorp. Inc. (ABNK) for $1.7 billion in cash and stock to expand into the fast-growing Texas market.

Zions (search) will pay $8.50 in cash or stock plus 0.2020 Zions shares for each share in Amegy (search), the third-largest independent commercial bank in Texas. Amegy will keep its own name and management.

This deal prices each Amegy share at $23.32, which is a 1.5 percent premium over Tuesday's closing share price of $22.98. Amegy shares have risen about 31 percent in the past two weeks on speculation of a possible takeover.

"Zions currently operates in many of the highest growth markets in the country and the addition of a Texas presence will further enhance the current growth prospects of the company," Zions said in a statement.

The acquisition, involving about $600 million cash and about 14.25 million Zions shares, is expected to close in the fourth quarter of 2005 and add to Zions' earnings per share beginning in 2007.

Zions said it will fund the cash component of the deal by a mixture of hybrid and subordinated debt securities.

Once the deal is completed, one member of Amegy's board of directors will be elected onto Zions' board while Amegy's Chief Executive Paul Murphy will retain his position.

Lehman Brothers served as Zions' financial adviser and Pillsbury Winthrop Shaw Pittman LLP its counsel, while Goldman Sachs advised Amegy and Sullivan & Cromwell its counsel.