* Atlas Mara has to make decision by Sunday
* UBN formerly owned by Barclays
By Chijioke Ohuocha and Steve Slater
LAGOS/LONDON, Sept 4 (Reuters) - Atlas Mara, the African investment vehicle of former Barclays boss Bob Diamond, is in talks to buy a $275 million stake in Union Bank of Nigeria , a person familiar with the matter said on Thursday.
Lagos-based UBN was established as Colonial Bank in 1917, and from 1925 until the 1970s was owned by Barclays, the British bank that Diamond led before being ousted under a cloud two years ago. UBN's market capitalisation is about $850 million.
Atlas Mara has to make a decision on whether to buy the minority stake in UBN by Sunday. Atlas Mara and UBN declined to comment.
Atlas Mara said in a prospectus published last month for the relisting of its shares in London that it had the option to invest $275 million for "a non-controlling minority stake in a publicly traded African financial institution with operations in Nigeria and certain other countries in West Africa."
It said this week it had extended a deadline on whether to take up the option until Sept. 7.
If it chooses not to buy the stake Atlas Mara will have to pay a "break fee" of $2.5 million.
A deal would mark the third significant acquisition by Atlas Mara after being set up last year by Diamond and Africa-based entrepreneur Ashish Thakkar. It raised $300 million last month to add to its acquisition war chest.
One of its purchases, ADC African Development Corporation, already owned a 9.1 percent indirect stake in UBN.
Diamond wants to build Atlas Mara into Africa's leading bank through acquisitions. Previous deals have given it a platform in several countries including Botswana, Mozambique and Tanzania.
Diamond is one of the world's best-known bankers after spearheading the growth of Barclays' investment bank before being forced from his job as CEO in 2012 by UK regulators after the bank was fined for attempted rigging of Libor interest rates.
His plans in Africa could put him in direct competition with Barclays, which has had a presence there since the 1920s and is one of the biggest international banks on the continent. (Editing by Keiron Henderson)