M&T Bank (NYSE:MTB) gained on Monday after announcing its plan to buy Wilmington Trust (NYSE:WL) in a bargain deal valued at $351 million, a whopping 46% discount. 

Under the terms of the all-stock transaction, Wilmington shareholders will receive just over a half a share of M&T common stock in exchange for each of their Wilmington shares, representing a 46% discount on Friday’s closing price of $74.75 a share.

The Wilmington, Del-based bank, a smaller US regional bank and wealth manager, tumbled more than 42% on the news.

The announcement followed Wilmington’s report of a $365.3 million loss, or $4.06 a share, widened from a loss of $116.4 million, or $1.33 a share, in the same quarter last year, and far below the Street’s view of a 43-cent loss.

The worse-than-expected decline in earnings, the company's sixth consecutive quarterly loss, was due primarily to continued deterioration in commercial credit quality, a reflection of the bank’s exposure real estate construction lending.

“As our third quarter earnings announcement shows, we continue to face difficult financial realities associated with the credit quality of the loan portfolio in our banking business,” Wilmington CEO Donald E. Foley said. “As a result, our board examined a range of strategic alternatives and has held discussions with several potential partners,” ultimately deciding on M&T as the “best available option” for its shareholders.

M&T, which said the deal will be accretive to its earnings in 2012, believes its internal rate of return on the investment will exceed 20%. 

“By leveraging the combined strengths of both organizations, we are building an even more powerful franchise with strength and stability, scale and density and top-of-class products and services,” said M&T CEO Robert G. Wilmer.

The merger, which has been approved by the board of directors of both companies, remains subject to customary closing conditions and approval from Wilmington shareholders.

Once completed, Wilmington’s Foley will be appointed to M&T’s board of directors and its principal banking subsidiary, M&T Bank.