Alliance & Leicester and BoI confirm pounds 11.5bn merger talks

NEARLY pounds 600M was added to the value of Alliance & Leicester and Bank of Ireland yesterday after the two banks confirmed weekend reports that they were in discussions about an pounds 11.5bn merger deal.

The move also sparked talk of a counterbid, with Lloyds-TSB, Barclays, National Westminster Bank and ABN-Amro all mentioned, with varying degrees of conviction, as possible predators.

Although the stock market reacted in favour of the deal, bankers were more sceptical. "I don't think this deal will happen," said one investment banker. "I think Bank of Ireland deserves better."

While Bank of Ireland shares rose 3.9 per cent to 1,283.5p yesterday, Alliance & Leicester shares went up by nearly 7 per cent to 929.5p reflecting the general view in the City of who had the better of the deal.

Other analysts also criticised the fact that the two banks had gone for a cumbersome dual listing structure with two headquarters, including Alliance & Leicester's Park Lane offices, because of the desire to mollify public opinion in Ireland, but which runs the risk of storing up problems for the future.

One of the key issues still to be resolved is whether the banks will retain registered offices in both London and Dublin and whether the Bank of Ireland or the Financial Services Authority in London will be the lead regulator. Although Alliance & Leicester insists it will keep its takeover protection until 2002 because of the "merger of equals" structure, bankers said it would be hard for the bank to turn down a better offer.

Analysts said any counterbidder would want to wait to see how the deal went down with Bank of Ireland's shareholders.

The fact that Alliance & Leicester's chief executive Peter White has come out on top also disappointed some analysts. "Warburg [BOI's adviser] have not done a good job of representing their interests. Alliance & Leicester has got everything they could want," said one analyst.

The statement said that cost and revenue benefits of pounds 200m are expected and dividends will be split between shareholders on a ratio of 55 per cent to Bank of Ireland shareholders and 45 per cent to BOI.

The prospect of a deal between BOI and Alliance & Leicester turns the heat back on to the Woolwich, which spurned an earlier merger approach from Alliance & Leicester nearly two years ago. However, analysts were sceptical that the deal would prove a trigger for wide-scale consolidation among the larger banks.

Outlook, above

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