Abbey board discusses Spanish takeover bid

The board of Abbey National was understood to be meeting today to discuss whether to recommend an £8bn-plus (€12bn) takeover approach from a Spanish bank.

The group’s board was reported to be meeting later this afternoon follow a meeting by senior executives of Banco Santander Central Hispano (BSCH) in which they were finalising the terms of their offer.

Abbey announced on Friday that it had received an approach from the Spanish group but refused to comment further.

Details of the bid are not known, but Sunday newspapers reported BSCH to be offering between 580p and 590p a share for Abbey, which would value the group at around £8.6bn (€12.9bn)

The final value of the bid will depend on the closing price of BSCH’s shares on the day an offer is tabled.

Shares in Abbey closed up 18% at 580p on Friday following confirmation that it was involved in talks, but the BSCH offer price represents a premium of around 40% on the 420p shares were trading at before takeover rumours boosted their price.

It is understood that Abbey shareholders would be given shares in the new enlarged BSCH group under the deal and around 10% cash.

It is thought special dealing arrangements would be put in place to enable the large number of UK shareholders who collected windfall shares when Abbey converted from a building society to sell their shares, as it is thought they would be unlikely to want to hold a stake in a Spanish group.

If the deal goes ahead, it would create the fourth largest bank in Europe and the eighth largest in the world.

It is understood that talks between the two banks began earlier this year but failed to progress due to uncertainty over whether Abbey would have to put large amounts of money into its life insurance businesses Scottish Mutual and Scottish Provident.

This hurdle was removed earlier this month following talks with City watchdog the Financial Services Authority.

Meanwhile, there was speculation that the BSCH offer could spark a bidding war for Abbey, with potentially interested parties rumoured to include Citigroup and Bank of America in the US and HBOS and Royal Bank of Scotland in the UK.

In 2001, Lloyds TSB failed in an £18bn (€27bn) bid for Abbey after the British government blocked the move on competition concerns.

The group has since shed jobs, sold non-core assets and reorganised its operations in a three-year overhaul designed to reverse two years of heavy losses.

It has insisted it would show a return to the black in the current financial year after losses hit £686m (€1,039m) in 2003 and £947 million in the year before that.

It has also faced criticism over its new corporate image, which ditched the second part of its name and its traditional “couple under an umbrella” logo in favour of the single title Abbey.

The group is the UK’s second biggest provider of mortgages and savings and the sixth largest bank by assets in Britain.

Its main offices are in London, Milton Keynes, Bradford, Glasgow and Edinburgh. It employed about 25,900 people at the end of last year and it has 1.8 million shareholders.