Irish Life & Permanent is preparing to acquire both EBS and Irish Nationwide in unrelated trade sales later in the year in a bid to become the lead institution in the long-mooted 'third force' in Irish banking.

It is understood IL&P plans for its group holding company to buy the two building societies separately before merging them with its banking arm, Permanent TSB, and spinning them out as a separate institution. IL&P would retain a large minority stake in the new entity with the state owning the rest.

Such a structure could dramatically boost IL&P's share price, as the banking arm of the business has been undermining the group's investment profile since the start of the banking crisis, according to analysts.

IL&P re-emerged as suitor for EBS last week after it became clear the state-controlled building society was unlikely to conclude a deal with a private equity consortium led by Cardinal Asset Management and understood to include JC Flowers.

Market sources had cast doubt on JC Flowers' bona fides, claiming the private equity house was on a "fishing expedition" and did not have the necessary funds available to recapitalise EBS. One Dublin-based stock analyst said a deal between EBS and the private equity consortium made no sense as the building society's potential profits were too modest to provide a substantial return.

IL&P has long been considered a logical fit with EBS and the two were engaged in merger talks as far back as late 2008. The tide is now shifting back into IL&P's favour after months of negotiations, first between EBS and Irish Nationwide and then EBS and Cardinal.

EU rules banning the merger of two state-owned entities have left IL&P as the default consolidator of smaller lenders in the Irish market, as the institution is not a part of Nama and has not received any capital from the government.

IL&P has until 2 July to submit a proposal to EBS after it completes due diligence. No deal is expected before the European Commission rules on IL&P's business plan, which must be submitted in September.