A&L shares set to leap amid merger speculation

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The Independent Online
SHARES IN Alliance & Leicester, the former building society, are expected to jump today as merger speculation sweeps the City in response to the surprise ousting of chief executive Peter White on Friday night.

Banking analysts said Mr White's departure increased the chances of A&L, Britain's fifth-largest mortgage bank, seeking a merger of equals with one of the industry's small or medium-sized players, notably Woolwich, the fourth-largest mortgage lender.

Woolwich yesterday denied it was in talks with A&L. "We are not in talks and talks have not been on," said a spokesman.

Alternatively, A&L could submit to a bid from a larger predator anxious to expand its mortgage business. Likely buyers would include Lloyds TSB, Britain's biggest bank, Royal Bank of Scotland, and Halifax, although any deal would have to be agreed since A&L is protected from a hostile bid until 2002 under legislation for floated building societies.

Analysts said Mr White's abrupt departure had effectively started the countdown to a deal as A&L's board attempts to drive the business forward to maximise shareholder value and secure an agreed deal before 2002. John Windler, A&L's non-executive chairman who will become interim chief executive, said the group is determined to be a "key player" as the sector consolidates.

Mr White's departure will be formally announced to the Stock Exchange this morning, but the statement is not expected to signal that a merger or buy-out is being considered.

Analysts said his departure reopened the door to a link-up. They noted that Mr White's bruising management style not only alienated fellow executives, but also was a prime factor in the collapse of merger talks between A&L and the Bank of Ireland in June.

Following the aborted BoI talks, A&L launched a pounds 300m share buy-back campaign. To-date it has spent about pounds 180m on the buy-back, which is to be completed by the end of the year. A&L said yesterday the buyback would continue.

Although A&L's share price has traded sideways in the past 24 months, following a sharp rise after its spring 1997 float, the bank made progress in reducing costs under Mr White. Its cost income ratio has fallen to 53 per cent.