UK: Former building societies announce £1.2bn merger

Former building societies Abbey and Alliance & Leicester are to be merged under a £1.26bn (€1.5bn) deal announced today.

Former building societies Abbey and Alliance & Leicester are to be merged under a £1.26bn (€1.5bn) deal announced today.

Abbey’s parent, Spanish banking giant Santander, plans to merge the two companies into a business with 959 UK branches and a share of more than 8% of the savings and personal loans market.

It has agreed the takeover with A&L’s board and the deal should be completed in October – provided no rival offer emerges.

Santander will also pump around £1bn (€1.2bn) into A&L to shore up the group’s finances, which have been rocked by the impact of the credit crunch in the past year.

A&L, which has more than 7,000 staff in the UK, can trace its origins back to 1852 and the formation of the Leicester Permanent Benefit Society.

It demutualised in 1997 and joined the FTSE 100 Index but dropped out of the top tier earlier this year as shares tumbled on concerns over the strength of its finances to ride out the credit storm.

A&L’s acting chairman, Roy Brown, said the board had recommended the offer “after careful consideration”.

He said: “The board is acutely aware of the significant external risks presented by the deterioration in economic conditions and the continuing turbulence in the financial markets.

“Against that background, the proposal from Santander represents value for shareholders, and the combination of A&L with Santander’s UK operations is an excellent fit.”

Santander – the world’s sixth biggest bank by market capitalisation and the biggest in Europe – bought Abbey in 2004. It expects to make annual savings of more than £180 million by the end of 2011 through the combination of back office functions.

But the Communication Workers Union (CWU) voiced fears over potential job cuts among A&L’s staff.

Andy Kerr, deputy general secretary, said: “This is potentially a very serious situation for CWU members in Alliance & Leicester. A takeover by any company already active in the UK could mean a potential large number of job losses.

“Staff at A&L deserve to have answers about their future and we urge the company to be upfront about their intentions.”

Shares in the company soared almost 50% today after A&L announced advanced talks with an unnamed suitor.

Speculation immediately centred on Santander because of previous discussions between the pair, and Santander later confirmed the approach to the Spanish stock market.

David Cumming, head of UK equities at Standard Life Investments, which holds a 2.35% stake in A&L, said it was a “gorgeous deal” for Santander.

“They are acquiring A&L on give-away terms. Given the potential integration benefits other banks must surely be reviewing their options.

“I would be amazed if no one else counters with a higher offer in the next few months,” he added.

Santander’s chairman Emilio Botin said: “We are very pleased to be working with the management and employees of A&L as we seek to build with Abbey one of the leading franchises in the UK banking sector.”

The company has also seen board upheaval alongside market turbulence. The group appointed Alan Gillespie as chairman last week after previous incumbent Sir Derek Higgs died in April.

A&L has more than 5.5 million personal customers and at the end of April held £23.6bn (€29bn) in deposits.

But before today’s surge on the takeover approach, shares in A&L had fallen from highs of more than £12 in May last year to a low of 213.25p earlier this month as the global credit crisis hammers banking stocks.

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