Abbey wins pounds 1.3bn N&P battle

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The Independent Online

Financial Correspondent

Abbey National will announce today that it has won the auction for National & Provincial Building Society, the UK's ninth largest society, beating off rival bids from Nationwide and Lloyds Bank.

The deal has to be voted on by N&P's 1.7m members at an extraordinary general meeting to be held in the autumn. It will mean cash payouts averaging pounds 500-pounds 700, which should be payable before Christmas.

Some big investors may get up to pounds 13,000 if the deal is similar to past acquisitions.

Sources close to Abbey said yesterday that N&P's chief executive Alistair Lyons agreed to accept Abbey's modified bid of pounds 1.3bn in cash and shares on Friday, and that the documentation was thrashed out over the weekend. N&P sources had assumed the deal would be announced midweek, but Abbey said yesterday that press speculation had forced it to bring forward the announcement.

Abbey's victory opens the gate for more hostile bids for societies from banks, ending any pretence that the mutual sector is safe from such approaches.

Analysts said that an Abbey win would accelerate the shrinkage of the mutual sector. Lloyds has recently bought Cheltenham & Gloucester, while the Halifax and Leeds building societies have merged to convert into a bank. TSB and National Bank of Australia head a list of banks that want to buy societies.

The Abbey sources said that Lloyds Bank had in fact offered more at pounds 1.4bn, but that Mr Lyons had preferred Abbey's offer because they made a better business fit and had similar cultures.

Lloyds refused to comment officially. Sources close to the bank, however, said it had never offered more than pounds 1.2bn.

The City spotlight will be on the price. Peter Birch, the chief executive of Abbey, faced some criticism for the pounds 285m he paid for the consumer credit company First National Finance Corporation (FNFC) last week, which analysts regarded as a very full price.

Abbey's pounds 1.3bn offer represents 1.75 times N&P's net asset value of pounds 732m, and some City sources suggest Mr Birch may suffer more criticism from shareholders for overpaying.

According to Abbey sources yesterday, its original formal bid was for pounds 1.2bn, not the pounds 1.1bn reported. It was forced to increase the offer by pounds 100m to pounds 1.3bn to clinch the deal.

Under the deal N&P will be subsumed into Abbey, losing its name, and Mr Lyons will get a seat on Abbey's board.

Abbey sources insist that there will be no forced redundancies amongst N&P's 4,500 staff. There will be some cost efficiencies, which it is intended will be made through natural wastage.

N&P's Bradford head office will be preserved, but there is no indication of what will happen to its 320 branches. There is a natural spread to the two branch networks: N&P branches are mainly in the north of England, while Abbey's is concentrated mainly in the south.

The Nationwide Building Society yesterday refused to comment on the rejection of its bid. It is expected by analysts to continue its efforts to find a suitable society as a merger partner, possibly with another of the rejected suitors for N&P, the Alliance & Leicester.

N&P started the bid process in the first instance when it invited offers at the end of April. Originally Mr Lyons hoped to merge with another society and then convert to bank status, but then Abbey made an unprecedented public statement, saying that it was prepared to pay a substantial premium over net asset value for N&P.

Around half a dozen institutions subsequently entered the fray, including two plcs and three building societies. The competition was still open until midway through last week, when Abbey emerged as the frontrunner ahead of Nationwide.

Last Tuesday, when Abbey announced its acquisition of FNFC, Mr Birch said that he was hopeful of winning N&P as well: "We're keeping our fingers crossed and our toes too. If we're successful ... we might shut the door (to futher acquisitions) and consolidate."