Alliance opts for flat-rate share handout

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The Independent Online
Alliance & Leicester Building Society surprised experts yesterday by announcing that its 2.4 million members would each receive a flat rate allocation of shares worth about pounds 1,000 when the society floats on the stock market next year.

The move, which runs counter to plans so far announced by all other converting societies, was described by the Alliance & Leicester as the only fair way of parcelling out its assets.

Under the Alliance & Leicester's system, borrowers will receive the same allocation as savers, again different from other societies, where investors have tended to do far better.

However, the society's controversial decision looked set to be interpreted as unjustly favouring so-called "carpetbaggers" who only joined in the final months before the flotation announcement in order to gain from the shares handout.

One executive of a society that is also abandoning mutuality, who would not be named, said: "I confess to being slightly puzzled. It looks like in the rush to be first the Alliance & Leicester is scoring an own-goal, particularly with those members who have parked thousands of pounds in their accounts."

Halifax, Woolwich and Bristol & West, all planning to de-mutualise or be taken over next year, have said their shares will be allocated by way of a basic distribution plus an additional amount linked to savings.

Peter White, group chief executive of the A&L, said: "Our decision was based on the simple point that if you had a vote you should be entitled to the same amount of shares as everyone else." He added that the vast bulk of the society's members, about 70 per cent, had less than pounds 2,000 in their accounts and would gain from the arrangement.

Those who are both borrowers and savers with the A&L will receive a double share allocation.

By opting for a flat shares handout, the A&L was speeding up the conversion process, allowing it to float on the stock market sooner than its rivals. "We were one of the last to make the announcement and will be the first to float," Mr White said.

Rob Thomas, building society analyst at UBS, the Swiss bank, said: "It is certainly surprising. It may be that the society decided that it wanted its members to know simply and clearly what their allocation will be.

"It could be that they felt the technology involved in determining exactly what the allocation should be in relation to the amount in the share account was beyond them. While this is unlikely, doing things this way certainly removes the complexity."

The A&L was among the societies which progressively restricted membership from late 1995 onwards by raising its minimum deposit to pounds 500 and then pounds 2,500 as tens of thousands of policyholders tried to open accounts with it.

Shares in the society, the UK's fourth biggest, will be worth between 385p and 435p, giving it a valuation of between pounds 2.4bn and pounds 2.8bn. Mr White said the estimates had been assessed conservatively, suggesting that the eventual value of the shares could be greater than this.

To be eligible to vote, members must have had at least one mortgage or share account with a minimum of pounds 100 on 31 December 1995. First-named or sole investors should have had the same minimum on 14 October this year and must keep this amount in their account until 10 December.

Transfer documents and voting forms are being sent to all eligible members by 8 November, with postal votes due by 5 December and a special general meeting scheduled at the 10,000-seat London Arena on 10 December. If approved by members, the flotation will take place some time between April to June next year.

Comment, page 17

When Payout Estimated Number of

for members market value members

Building Societies

Alliance & Leicester April 1996 flat (pounds 1,000-plus each) pounds 2.8bn 2.4m

Halifax June 1997 variable (pounds 500 - pounds 4,000 each) pounds 10bn 10m

Woolwich June 1997 variable (pounds 500 - pounds 3,000 each) pounds 3bn 3.5m

Northern Rock Sept 1997 variable (pounds 500 - pounds 2,500 each) pounds 1bn 1.4m

Bristol & West June 1997 variable (pounds 500 - pounds 3,000 pounds 650m 1.2m

borrowers pounds 250 each)

Mutual Insurers

Norwich Union June 1997 variable (pounds 500 - pounds 2,500 each) pounds 3.5bn 2.9m

Colonial Mutual June 1997 variable (min pounds 285, plus options) pounds 1.75bn 270,000 (in UK)

Earlier flotations/takeovers

National & Provincial Sept 1996 variable (cash/shares pounds 500 - pounds 4,750) pounds 1.4bn 1.4m

(takeover by Abbey National)

Cheltenham & Gloucester June 1995 variable (cash pounds 500 - pounds 13,500)

(takeover by Lloyds Bank) borrowers nothing) pounds 1.8bn 900,000