Abbey National made a strong public appeal to National & Provincial yesterday to enter bid talks, as Abbey confirmed weekend press reports that it had been rebuffed a year ago. Any deal could value N&P at up to £1.5bn.
"We have indicated to the management of N&P that we would expect, subject to further information being made available to us, to be able to offer their members a substantial premium to net asset value," Abbey said.
Abbey also said it had held talks with N&P's previous management under former chief executive David O'Brien, while N&P had been separately proposing to merge with the Leeds. In the event the Leeds broke off and joined Halifax, and Mr O'Brien resigned last September.
N&P's new chief executive Alastair Lyons will today deliver his reply to the request.
Sources close to N&P say it is very happy to talk to Abbey, but is also currently considering several different strategic options, such as merging with another society and converting to PLC status, on the Halifax-Leeds model.
The sources also point out that N&P's 400,000 mortgage borrowers may object if they miss out on any payout, as C&G's borrowers did, due to a High Court ruling on building society legislation last year.
If Abbey is successful it would acquire the UK's ninth biggest society with 320 branches and 3 million customers. Only an estimated 1.5 million would be qualified for payouts under the C&G ruling, according to industry sources.
N&P has about 2.5 per cent of the UK mortgage market against Abbey's 12 per cent. It has 4,500 staff against Abbey's 20,000. N&P is also one of the largest societies in Scotland.
John Fry, Abbey's deputy chairman, said that the two would make a good geographical fit, N&P strong in the North and Abbey in the South.
N&P has net assets of £732m. Lloyds paid 1.8 times net assets for C&G.
City analysts took "substantial premium" to mean anything up to 2 times, giving N&P a price of around £1.5bn.
Hugh Pye, an analyst with BZW, said that following Abbey's statement "the ball was now in N&P's court. There could be a customer windfall. Abbey could be playing a strategic game here."
However, by mentioning a premium Abbey had made it "a seller's market", added Mr Pye. The bank could well end up paying too much for it, he warned.
John Wriglesworth, a senior manager with Bradford & Bingley, said the public statement was "stupid, aggressive and naive." He added: "The only thing Abbey have secured by this statement is that they will never get a building society. They've just gone to the bottom of the list. This shows naivety beyond belief. It's an act of desperation by someone who has tried to buy a building society for five years and failed. It will get the backs up of all the likely candidates, not just N&P."
Mr Wriglesworth said it was wrong that people putting a few hundred pounds into a society on the off-chance it may merge should be paid out the reserves of that society.
The Abbey deal would only make sense if it shut N&P branches and sacked staff in order to cut costs, he added. "It will be a complete hatchet job. It would be better if one of the Scottish banks got N&P."Reuse content