BoI to offer €1.6bn in cash along with shares for Abbey National

BANK of Ireland will offer Abbey National shareholders a cash pay-out of some €1.6 billion in a bid to sweeten its merger proposal, it was reported yesterday.

Chief executive Michael Soden is expected to unveil the cash offer with an all-share merger proposal that will value Abbey’s shares at 750p. Abbey is currently valued at around 14.3 billion euro. Some three million private investors may be swayed by the deal. Around 30% of Abbey National is controlled by small shareholders, many of whom received their shares following the de-mutualisation of 1989.

Despite the initial rejection of Bank of Ireland’s overtures, Abbey National will now face pressure to at least sit down to talks.

It is believed, however, that BOI has ruled out any hostile takeover bid in the event it is again rebuffed. The market reacted very badly to the initial bid by the Irish bank whose shares plummeted last week.

They reached 8.70 euro on Wednesday but recovered a little by Friday evening, closing 5.5% at 9.65 euro.

The bank is expected to publish its commercial rationale for the deal with the British-based institution either today or tomorrow.

The merger would create Europe’s 11th largest bank with a market capitalisation of about $22 billion.

It is believed BOI’s proposals this week will suggest potential areas for savings, such as moving Abbey National’s call centre operation here to benefit from a lower tax charge, and also the possibility of merging a lot of Abbey’s financial services business with those of BOI in the IFSC.

Abbey’s wholesale banking activities in Britain are taxed at 35%, but would be subject to just 12.5% in Ireland. It was reported any deal between the two banks would be implemented on a phased basis over a number of years.

Bank of Ireland plans to seek a primary listing for the merged entity on the London Stock Exchange, with a secondary one in Dublin.

Its advisers will also attempt to whip up support for the bid among institutional investors in meetings with them this week.

It is reported BOI believes investors still need to be convinced of the rationale for the merger before any discussion takes place on a price for Abbey National.

Bank of Ireland declined to comment on yesterday’s reports.

An Abbey National spokesperson said that the bank was unaware when Bank of Ireland would release details of its proposals or what they would include.