Talks on a $6 per share, $2.5 billion deal for the UK mortgage lender are understood to be at an "advanced" stage.
Shares in Alliance & Leicester increased in value by 40 per cent in London this morning, as the markets reacted to the news.
The firm is one of the worst-hit in the UK by the ongoing credit crunch, and has suffered an erosion in share value of around 75 per cent over the past 12 months.
City rumors had previously suggested that liquidity worries could force the lender into a rights issue in order to raise new capital.
"Alliance & Leicester confirms that it is at an advanced stage of discussions regarding a possible offer at an offer price of [$3] a share," the firm said in a statement today.
Santander already owns Abbey, one of the UK's biggest mortgage lenders.