Shares seesaw on news of merger bid
It became apparent quickly that Abbey National shareholders will want a hefty premium of the seven-year-low price Abbey shares had fallen to by close of business on Friday.
Shares in Abbey National, Britain's sixth biggest bank, rose 8% on Monday after the merger approach from Bank of Ireland, but when investors poured cold water on the idea the price fell back to show a 6% increase on the day.
Morley Fund Management's David Lis, one of Abbey's top five institutional investors, said: "A nil-premium merger makes little obvious sense."
With Abbey National in play, investors piled in and drove the shares well ahead of Friday's close, up 6%.
Investors in Bank of Ireland looking at the same picture decided this was bad news for the bank and 857m euro was wiped off its value during day's trading with the shares falling 8.32%.
Irish Life Investment Managers head of asset allocation, Eugene Kiernan, said the move by Bank of Ireland was a takeover manoeuvre.
"From an investor's point of view, this is going to be a longer process than most people would like, but this deal appears to have legs. The best bank mergers are always the ones where people agree on both sides. This is clearly a takeover," he said.
London brokers UBS and Dresdner Kleinwort Wasserstein have price targets of stg£7.80 for Abbey, while WestLB has an stg£8.50 price target.
Any Bank of Ireland bid would need to be higher than current Abbey levels and closer to these London targets, institutions say. But if there is no other bidder then prices might not go this high.
Bloxham Stockbrokers head of investment strategy, Pramit Ghose said: "If the deal goes through at a reasonable price, it's a very good deal for Bank of Ireland, and even if it doesn't go through, Bank of Ireland have been shown to be very clever, ambitious and chief executive Mike Soden comes out looking very good."
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