Bank vulnerable after failed takeover

BANK OF IRELAND’S spurned takeover of Britain’s second-biggest mortgage lender has left the bank vulnerable to being taken over itself.

Bloxham Stockbrokers senior analyst Kevin McConnell said the fall in BoI’s share price since the close of business on Friday had reduced the cost of taking over BoI.

“They are vulnerable to takeover from a third party. The likelihood of a predator making an offer for BoI has increased considerably,” Mr McConnell said.

“When you consider that AIB shares fell by 15% in the wake of the Rusnak affair and BoI’s were down by the same amount after news of the Abbey National deal came out, it puts things in perspective,” he said.

Mr McConnell believed BoI would not be able to pull off a deal with Abbey and he said this created credibility problems for the bank.

Investors began to plough into BoI shares yesterday, pushing up the bank’s value by 4.26% and restoring €373 million to its market capitalisation after three days of heavy falls which knocked close to €1.5 million from the company’s market value.

Goodbody Stockbrokers, owned by rival AIB Bank, issued an effective buy recommendation on the shares when they hit €9.40 but investors waited until they fell to €8.68 before pushing the price back up yesterday.

Goodbody told clients that there was a relatively strong likelihood the BoI takeover deal would not go through, identifying two issues which could scupper the deal.

Assuming the deal was largely paper driven, Goodbody believed ANL management would not accept shares.

Another bidder could emerge capable of more significant synergies than BoI.

“Sub 9.50, the downside risk appears overplayed at this stage. On a short-term view, we would recommend buying into weakness at below this level,” Goodbody said.

Investors were buying into BoI believing the Abbey deal was dead in the water and that a predator for BoI might emerge as a result of the weakness shown by the bank in what

appeared to be a poorly-executed Abbey takeover plan.

If BoI management chase Abbey harder, its share price might fall and if so, would-be predators like Lloyds TSB or Royal Bank of Scotland might look to capture the exceptionally-strong regional franchise held by BoI.

However, the possibility of a takeover of BoI should keep its share price strong enough to put off suitors.

Abbey shares have risen by close to 20% since the leak to the Sunday Times that it was the focus of a bid by BoI.

Nevertheless, the market was awaiting BoI’s promised statement that it hoped would clarify the proposition it put to the Abbey board.