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Lloyds to battle for Abbey
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February 23, 2001: 9:12 a.m. ET
Government refers $29B bid for Abbey National, Lloyds undeterred
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LONDON (CNN) - Lloyds TSB vowed to fight on with its £20 billion ($29 billion) bid for Abbey National on Friday, despite government opposition.
Stephen Byers, UK trade and industry secretary, sent the buyout plan to Britain's competition watchdog, warning the proposed combination could reduce competition to provide banking services.
"The proposed merger...might result in a substantial lessening of competition," Byers in a statement. The Competition Commission must report back by June 12 on whether his fears are warranted.
Lloyds said it would cooperate with the enquiry, and was confident it would eventually be cleared to take control of Abbey. 
Peter Ellwood, Lloyds' chief executive, said in a statement that the bank will "ensure that we are in a position to make an offer for Abbey National, if cleared." He said that talks with Abbey shareholders had been in favour of a merger of the firms.
Analysts had not been banking on approval from Byers, who cited concerns about the combined market share of a Lloyds-Abbey in current accounts – or checking accounts – and lending to small businesses.
"I suspect that most people, on balance, had been expecting a referral," said James Johnson, an analyst at Credit Lyonnais Securities, who has an "add" rating on Lloyds and a "reduce" on Abbey National.
"Politics, politics, politics"
Another analyst, who requested anonymity, said the Byers decision will allow the Labour government to avoid a political hot potato ahead of the expected general election this spring. The Blair government has until May 2002 to call an election, but many expect May this year is more likely.
"Politics, politics, politics – those are the three reasons," the analyst said. "If (the government) gave it a green light, it would open them up to criticism that they were open to the likely sacking of up to 10,000 people, but a red light would suggest that they aren't open to free competition."
Abbey National had been hoping Lloyds would be put off by the government ruling, and told CNN.com it "wasn't surprised" at the referral. It hoped could now get on with its rival plan to merge with Bank of Scotland. Those talks are ongoing, but have been hindered by the shadow of the Lloyds bid, according to an Abbey spokesman.
Abbey said the competition investigation would be "onerous" for everybody involved because of the amount of information required.
Abbey and Bank of Scotland, who analysts said had expected a referral to last until August or September, are likely to step up their efforts to strike a deal and then aggressively pitch it to shareholders. 
Abbey, Britain's second-largest mortgage lender, rejected Lloyds' initial, 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.
However, Johnson said the new hurdle presented by Byers for Lloyds doesn't mean Abbey will have smooth sailing in its planned merger with Bank of Scotland.
"People don't feel there's a Abbey National-Bank of Scotland merger on the table," said Johnson. He has a "reduce" rating on Bank of Scotland.
Lloyds came back with another approach in January, on the same terms as its December offer. The deal is conditional on regulatory approval and backing from Abbey's board.
Abbey rejected both approaches, saying the proposed price undervalued the company and predicting it 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 1,223 pence. The offer represents a 7 percent premium to Abbey's closing price of 1,139 pence on Thursday.
Abbey (ANL) shares fell 3 percent on the news to 1,105 pence, while Lloyds (LLOY) fell 2 percent to 618 pence. 
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