However, it faces a legal challenge from the Building Societies Commission, which will argue in the High Court next month that the cash payment to depositors is forbidden by an Act of Parliament.
The deal, which will take a year to complete, will produce Britain's fourth largest home mortgage lender, with 7 per cent of the market and aggressive plans to expand by undercutting the competition. The City expects a rash of takeovers of building societies by outsiders now Lloyds has set the pace.
The windfall for C&G's mortgage borrowers is a flat pounds 500 payment and most savers will also receive that. But the biggest bonus for many customers will be a payment of at least 10 per cent of their savings as well.
The maximum amount payable on any one account is pounds 10,000, but some investors have more than one account. Those with deposit accounts that do not make them members of the society will get just the percentage payment.
The average voting member has pounds 12,000 invested with the society and will receive at least pounds 1,700 (the flat pounds 500 plus 10 per cent). There are 840,000 voting investors and 60,000 depositors, as well as 370,000 borrowers.
The building society, the sixth largest, is following the Abbey National in shedding its mutual status, but Abbey floated on the stock market instead of selling out.
After C&G staff, pensioners, and eligible savers and borrowers have received pounds 500 each, the rest of the pounds 1.8bn will be shared among savers according to the size of their accounts. The qualifying amount is the lower balance on either 31 March or the completion day next spring.
If people reduce the balance in their accounts or close them altogether before the final qualifying date - yet to be announced - then there will be more left for those who remain.
It is too late for savers to join the pay-out. They have to have held an account on 31 December 1993 for the flat payment, and on 31 March 1994 for the percentage pay-out. But all borrowers on completion day - even those who take out a mortgage after today - will qualify for the flat pounds 500 payment.
Children cannot vote and their accounts will not qualify for the flat pounds 500, but they will get a percentage sum. Payments will come in the 1995-96 tax year and be subject to capital gains tax.
On the legal hurdle, C&G and Lloyds said they had had 'strong advice' from two leading counsel that the deal - the first takeover of a society by a bank - is legal and they believed permission to go ahead was highly likely.
They indicated that they would take the case to appeal if they lost and that in the last resort they would consider completely restructuring the proposals to get them through. Andrew Longhurst, chief executive of C&G, said: 'We believe the courts will endorse our view.'
The commission said in 1989 and reiterated last year that it believed cash payments direct to customers - on the lines agreed by Lloyds - were illegal under building societies legislation.
The commission has no objections in principle to the takeover and is to make its submissions to the court so that the law can be clarified in time for a vote by society members in November. But the commission can only allow the deal to be put to the society's depositors if it is consistent with the 1986 Act. A spokesman said: 'It is a matter of law and interpretation - opinions don't come into it.'
If the deal is cleared and then approved by the members it is expected to be finalised after next April.
There will be no branch closures or job losses as a direct result of the take-over. C&G will keep its name and have access to Lloyds' 6 million customers.
Lloyds won the hand of C&G against stiff competition after the society put itself on the market last autumn through the London arm of the US bank JP Morgan, following a 15-month review.
Morgan's code name for C&G's conversion to a bank during confidential negotiations was Paul - from the conversion on the road to Damascus - while Lloyds, advised by Barings, was called Emerald. Disappointed contenders included TSB, and industry sources believe Deutsche Bank and at least one French bank were on the shortlist.
Mr Longhurst - the highest- paid building society executive - said Lloyds was a clear front- runner, and it was 'hard to imagine as good a fit'.
Brian Pitman, chief executive of Lloyds, who failed two years ago in his bid to buy and rationalise Midland Bank, said: 'This will intensify competition in British banking and show up even more the excess capacity in certain sectors.'
Mr Pitman, who came from Cheltenham, said he had worked as a junior for C&G before joining Lloyds.
C&G groomed itself for sale by avoiding credit cards, cheque books, estate agency, cash machines and life insurance, leaving it a pure mortgage and savings operation with little overlap with Lloyds and other potential UK buyers.
There will be no branch closures and C&G will continue to trade under its own name with its own management, with its chairman and chief executive joining the Lloyds board. C&G will take control of Lloyds' mortgage operation. The principal attraction to Lloyds is C&G's high efficiency.
Mr Pitman said that although the price was 2.1 times book value at the end of last year, this would look much better by the time the deal went through in the second quarter of 1995 because there would be a further year of retained earnings. Last year the society made pounds 132m after tax, and analysts expect at least 25 per cent more this year.
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