A Spanish investor at Alliance & Leicester?

The UK bank's shares have soared this morning after it admitted to a £1.3bn takeover approach...

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Last Updated: 31 Aug 2010

Alliance & Leicester shareholders haven't had much to shout about this year, so they may have been cheered this morning by the bank's admission that it’s at ‘an advanced stage of discussions’ about a £1.3bn takeover. A&L didn’t name its potential suitor, but according to the BBC the bidder is actually Spanish banking giant Santander – it apparently wants to merge A&L with Abbey (which it bought back in 2004).

The offer would value A&L shares at 317p (299p a share plus an 18p dividend), putting the total price tag at about £1.34bn. The good news for A&L shareholders is that this is almost £1 more than the closing share price on Friday – although the bad news is that since the bank was trading at 1200p last year (it’s lost more than half of its value since January), lots of investors are still going to take a bath...

Although the announcement seems to have taken the City by surprise – a feat in itself these days – the move makes sense for both sides. Santander is looking to ramp up Abbey’s expansion – and having sniffed around A&L once already (back in December), the UK bank’s recent travails have made it an easier target.  What’s more, the FSA is clearly of the opinion that bigger banks are safer banks, so it’s been leaning on the smaller lenders to seek out the comforting embrace of a bigger owner.

One factor that might oil the wheels is A&L’s recent appointment of Alan Gillespie to succeed the late Sir Derek Higgs as chairman. The choice of Gillespie (who A&L pinched from Ulster Bank) was widely seen as an attempt to steady the ship ahead of further write-downs. But the well-respected industry veteran also has lots of experience of mergers and acquisitions, which looks like it might come in handy (although the deal itself could well be done by the time he joins in September).

The market certainly seems happy with today's news, judging by the 40% hike in A&L’s share price this morning. In fact, the announcement actually seems to have lifted spirits throughout the sector – prices were up across the board this morning, amid speculation that similar deals for the likes of Bradford & Bingley could follow.

So all in all, a fairly positive way to start the week. Unless you bought shares at 1200p last year, that is...


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