Abbey National has agreed to be taken over by Spain's biggest bank, BSCH, in a deal valued at about £8bn ($15bn).
Shareholders hope the BSCH bid will spark other offers
Abbey shareholders are being offered one share in the buyer, Banco Santander Central Hispano, plus 31 pence in cash for each of their Abbey shares.
This equates to 559p a share, based on Friday's BSCH share price, which is a 13% premium to Abbey's Thursday price.
Abbey investors, who include about 2 million small shareholders, will be asked to vote on the proposed deal.
A merger between the two firms would create one of the world's top 10 banks by market value, analysts said.
Abbey shares closed down 23 pence, or 4%, at 557p.
BSCH shares were down 3% in afternoon trade, on fears that many Abbey shareholders would not want to hold on to BSCH shares.
The BSCH share price fall reduced the value of the proposed takeover to 543p a share, still ahead of the 493p at which Abbey closed on Thursday - the day before takeover talk was admitted.
Out of the red
As Abbey announced the takeover details, it also unveiled that it had made a pre-tax profit of £350m during the first half of the year compared with a £144m loss a year ago.
Chief executive Luqman Arnold said the bank had addressed its main problems and could now "focus all of our time and effort" on growing its personal financial services business.
Analysts say a takeover should be good news for shareholders, who have had to put up with several years of poor results and seen Abbey fail in its foray into corporate banking.
However, some are questioning whether Abbey's many small shareholders will want to retain shares in a Spanish bank if it is not listed in the UK.
And some analysts are predicting that the BSCH offer may prompt rivals to come forward with offers for Abbey of their own.
Mr Arnold, who was appointed chief executive in 2002 to turn the business around, has been selling non-core businesses so Abbey can concentrate on its traditional strengths of personal finance and home loans.
The company was the first UK building society to demutualise and become a bank and has been the subject of many bid approaches, including an £18bn one from Lloyds TSB which was blocked on competition grounds in 2001.
Robin Geffen, a fund manager at Abbey National shareholder Neptune Investment Management, said that while many investors would be pleased, the suggested price of £8.5bn was on the low side.
"For something almost regarded as the 'banana skin' bank, any form of cash comes as a bit of a welcome relief," he said.
"Yet you have to put it into perspective - this is a bank that £18bn was offered for three years ago. So shareholders may only get half of that."
When Abbey National abandoned its mutual status to float on the London market in 1989 it was the first of a series of demutualisations across the building society sector.
About 5.6 million of Abbey's customers received windfall payouts in shares, 3.5 million of whom had never owned shares before.
The bank now has about 1.8 million shareholders, many of them still private investors with only a few hundred shares.
Abbey shares started trading at 130 pence and steadily rose in value during the 1990s before peaking at 1435p in April 1999.
But the bank began to store up trouble for itself in the late 1990s when it tried to diversify away from its core retail banking and mortgage business.
It made an unsuccessful move into investment banking, which it has spent the last couple of years extracting itself from at the cost of hundreds of millions of pounds.
It also bought life assurance operations which have proved another drain on resources in recent years.
Abbey's announcement last week that it did not need to inject extra cash into its life businesses to meet regulatory rules was seen by analysts as clearing the way for a takeover move.
Mr Geffen also suggested the takeover could be far from a done deal, with other potential buyers possibly now lining up competing bids.
"There could be a lot of complications," he said.
"There are some suggestions that Citigroup is standing by to have a knockout go, and that could flush out other bidders."
ABBEY FACTS & FIGURES
More than 16 million customers
Assets of £177bn as of end-2003
Created following the merger of Abbey Road Building Society and the National Building Society in 1944
Demutualised in July 1989
Shares were worth £1.30 at demutualisation
Name changed from Abbey National to Abbey in September 2003
One potential complication for the BSCH bid is that the Spanish bank has a cross shareholding with the Royal Bank of Scotland (RBS). It owns 5% of RBS, while the Scottish bank has a 3% stake in BSCH.
RBS's holding in the Spanish bank could lead to the same competition complications that prevented the Lloyds TSB deal.
BSCH is a keen buyer of fellow financial houses, having spent more than $30bn in the past seven years under chairman Emilio Botin.
The product of a merger between two large Spanish banking groups in 1999, it already has about 22 million customers in 30 countries.
I believe it would be a fundamental mistake for the smaller shareholder to vote for a deal where the major part of the takeover offer will be based on shares quoted in euros on a foreign exchange.
S W Hoey, Tring England
Being a small investor means I don't have any influence to speak of in whether this will happen. However like a lot of people I regret not selling at £14-15 a few years ago, so all I am interested in is how much I will get. One share in a bank I know nothing about and 31p a share when they are currently at 580p doesn't get my pulse going! Hopefully a FTSE 100 bank will wake up and put a counter bid forward.
Andrew Heaton, Woking Surrey
Not happy with the valuation this bid puts on the Company - hopefully this will bring out other potential bidders. I will be voting against the deal.
John Griffiths, Warrington, England
No No No.
It's not enough and under-sells the bank. I will vote against this deal.
G Moir, London UK
Abbey lost their way in recent years with a lack of direction and poor management. Shares tumbled from a high of around £14.35. Any benefits from this takeover will be welcome but £8.5 billion seems on the low side considering the offers which were blocked/rejected in the past.
John Turner, Wirksworth, Derbyshire
As this Spanish bank is listed on the Spanish stock excchange, presumably the dividend will be paid in euros. How will I be able to pay this into my English bank account?
gillian latter, croydon, surrey, england
Turning a company valued at £18 billion into one worth £8.5bn in less than three years. Absolutely genius. Let's hope the management all get generous bonuses for all their hard work.
It doesn't look like a very good offer as Abbey seems to be back on the mend by reconcentrating on its core businesses. I also have some concerns about it being owned by a Spanish bank.
Not particularly attractive;
Price too low.
Too complicated: small cash element and the balance as BSCH shares. Also there is a question regarding the previously proposed scrip dividend which Abbey now says will be suspended for legal reasons.
tom baggs, Abu Dhabi, UAE
I believe that this offer represents incredibly bad value for shareholders. Moreover, if I wanted to hold Spanish stock I would have purchased it already! Luqman Arnold and Stephen Hester have not done what they set out to do - maximise shareholder value. Abbey is being given away and Arnold and Hester are cashing in too soon.
Anto Nolan, Dublin, Ireland
I am an original investor and therefore have seen the rollercoaster share movement. It is difficult to have faith in a management that has lost so much shareholder value in recent years so an offer from anybody is welcome.
Michael Cartwright, London, UK
This is of no interest to me at all. Why do I want to own shares in BSCH, when it is hard enough trading in UK shares? As usual the small shareholder will have little say in what happens to Abbey. If the deal goes through as it is, I will close all my Abbey accounts.
steve, Ashbourne UK
I've been a shareholder in Abbey since they became a bank. I was one of the few who turned up to the EGM in Wembley that voted to de-mutualise (that is the meeting voted to stay a Building Society, but the millions who couldn't be bothered to come voted by post for the money!)
I don't like this new offer, it doesn't seem very high and will mean that I end up with Spanish shares, valued in Euros, that I don't know what to do with. How do I trade them, or follow their value? It would seem that the Abbey board have made a muck up of things, as they have done from the very start (I still remember that they used a legal technicality to deny shares to any of their members under 16, no matter how large their investment) and this takeover is just them abandoning the ship they've managed to run aground!
I would prefer it if Abbey was taken over by a UK institution that I was familiar with.
PS. I hope any new owner does something about the horrible corporate identity which looks so weak, fading away as it does, and as for the vomit green they've used on my local branch - aghhh!
Graham, London, UK
I feel BSCH is a good fit but I am sure they will not get Abbey for such a low price and a new bidding war (like Safeway) may commence. One other thing to note I hope Abbey will not be known as BSCH, can you imagine having a BSCH next door to a HSBC! How confusing will that be?
jason norton, wigan england
As it stands it would be of no good to me. What use are BSCH shares (in Euros presumably). I would want an all cash offer to tempt me.
David Sayer, London
Not only is the offer not high enough, but I have no wish to hold any Spanish shares, so I will be voting against this, and immediately selling if it goes through.
Ian, Canterbury, UK
I believe BSCH are attempting to pick up the Abbey on the cheap, looking to benefit from the disillusionment in the company's performance over the last couple of years.
It is a poor offering as highlighted by the 5% drop in share price once the details of the deal were announced.
Craig Colquhoun, Bristol, England
I'll take the positive out of the situation - an opportunity to start a 'European' portfolio.
Kevin Bassett, London
From my limited knowledge of sharedealing this isn't a good deal for Abbey shareholders. 31 pence a share is considerably less than what I paid for mine.
By accepting this offer Abbey is effectively abandoning those who allowed it to become a bank in the first place. I regret not selling when shares almost reached 1500 pence a share. I'm very disappointed.
John S, Hampshire, UK
BSCH are taking advantage of the devaluation of the business over recent years and the hasty acceptance of this derisory offer by the Board is a panic reaction. I will be voting against and recommend all other shareholders to do so.
Eddie Young, Loughborough, UK
A quick trip around the internet shows BSCH trading at E7.99 (534p at best exchange rates). This gives an offer price of 565p which really is not much of an incentive unless there is something more around the corner we don't know about. If this were to be a serious offer it needs to be increased by 5-10%, otherwise hold onto your shares until Citibank and others make their positions clear.
Nick, Burgess Hill, West Sussex
I am amazed to be reading comments about a foreign investor taking over a U.K. Bank. So what? This is business and we live in a globalised world. What is important is how this will help Abbey, and how shareholders will benefit from it in the long term.
Luis Alvarez, Madrid
Very poor deal for small Abbey shareholders. I for one don't want to hold European shares. The least BSCH could do is offer small shareholders the option of a total cash buyout. Better still is for a UK based takeover.
Graham Ellis., Bracknell. England.