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Lloyds bids $29B for Abbey
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January 31, 2001: 7:50 a.m. ET
British bank makes conditional offer for Abbey; Bank of Scotland left in cold
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LONDON (CNNfn) - Lloyds TSB Group, Britain's third largest bank, made a £19.8 billion ($28.9 billion) unsolicited bid for rival Abbey National on Wednesday.
Abbey, Britain's second-largest mortgage lender, rejected Lloyds' informal bid in December as inadequate. Abbey is still in talks regarding a friendly deal with Bank of Scotland, some seven months after initial contact.
 A person familiar with Abbey's thinking talked down the latest offer.
"This is still a tentative offer; nothing has changed and it's conditional. This is a phony war: is Lloyd's coming or going?" he said to CNNfn.com.
Lloyds' offer on Wednesday is made on the same terms as its last offer, and is conditional on regulatory approval and backing from Abbey's board. Abbey rejected that first, informal offer, saying the proposed price undervalued the company and would be unlikely to get past regulatory concerns.
Lloyds TSB plans to offer 1.5 shares plus 260 pence in cash, valuing each Abbey share at 1,362 pence. The offer represents a 12 percent premium to Abbey's closing price of 1,218 pence on Tuesday.
"Shareholders should be happy," Jim Wood-Smith, chief analyst at London investment bank Gerrard, told CNNfn.com. "Lloyds is not overpaying and for Abbey it's a reasonable exit price."
The Office of Fair Trading, the UK's competition watchdog, is currently reviewing Lloyds' proposed takeover bid and is due to make a decision by February 23.
"Its impossible to second-guess competition authorities but you can bet if it is referred to the government then no decision is likely until after the general election and that would save any embarrassing decisions for ministers ahead of the election," Smith-Wood said. The UK government is widely expected to call a general election for early May.
Before making Wednesday's official offer, Lloyds TSB Chief Executive Peter Ellwood spoke to Ian Harley, his counterpart at Abbey on Tuesday evening, saying Lloyds was going to make its conditional offer.
Lloyds TSB told CNNfn.com it will talk to major Abbey shareholders – including Standard Life, M&G and Legal & General – over the next 10 days about the bid. It said it would also begin a programme aimed at convincing analysts that the offer makes sense. The investment community has been split on whether such a move would be beneficial to both organisations.
Lloyds said the merger will lead to an additional contribution to pretax profit from sales and cost savings of £950 million a year, of which £900 million a year is expected to be achieved by the fourth quarter of 2005.
 The merger, if it goes ahead, would create Britain's second-largest banking group and would lead to the loss of some 9,000 jobs. Lloyds expects to take a £1.1 billion charge to undertake a reorganisation.
Standard & Poor's said Lloyds TSB's debt rating will remain unchanged should the merger go ahead. The Credit rating agency said the transaction would "create a group with a strong and enhanced position in the UK retail financial services, including long-term savings." Analyst Michelle Brennan went on to say Lloyds has a good track record on integrating acquisitions.
Abbey said it would make an announcement later Wednesday after its board had a chance to review the offer. Abbey said it was willing to engage in talks with Lloyds about the offer.
Meantime, the Bank of Scotland said it is considering the implication of Lloyds' latest move before it makes any comment. Abbey National said it hasn't reached an agreement with the Bank of Scotland partly because of Lloyds' continued interference.
Gerrard's Wood-Smith believes the Bank of Scotland "could be left at the altar again" after its plans to merge with National Westminster Bank were scuppered by the Royal Bank of Scotland last year.
"The Bank of Scotland realizes it cannot become a niche player delivering above average earnings, it needs a merger partner. It could become a sitting duck or choose to merge with Barclays," Wood-Smith added.
Shares in Lloyds TSB fell 31 pence, or 4.2 percent, to 704 pence on Wednesday, Abbey National slipped 1 percent, or 12 pence, to reach 1,207 pence, while Bank of Scotland declined 15 pence, or 2 percent, to 748 pence in midday trade. 
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