But Lloyds fears this would make it harder to convince C&G members of the merits of its offer because it would be a complex two- stage process rather than a simple cash offer. Members would have to be given shares and an offer made for those shares.
The Building Societies Commission believes that the 1986 Building Societies Act forbids cash offers by third parties to C&G members and restricts any payments to members who have been with a society a short time.
C&G is going to court on 23 May to seek a ruling that the commission is wrong, but the commission will be defending its interpretation in what could prove a serious challenge to the takeover.
The commission said a summons had been served on it by C&G that raised very important issues of law affecting the 'entire structure of the scheme' for the takeover.
BAT Industries, the tobacco and insurance group, has long made it clear it would like to buy a top-10 building society to help distribute the products of Allied Dunbar and Eagle Star, its UK insurers. It is believed to have taken a look at C&G.
BAT hopes the C&G deal with Lloyds will open up more opportunities. 'This happening may start a bit more movement elsewhere,' a spokesman said. 'We are watching this with great interest.'
National & Provincial Building Society took the first enabling step towards demutualisation a few years ago by upgrading its computer systems. Alastair Lyons, finance director, said: 'We don't see any imperative to convert. But we continue to review the situation.'
N&P is 'strongly positioned for an independent future,' Mr Lyons said.
Abbey National, which converted six years ago to a public company, confirmed it was in the market for buying a society. But it said: 'There is no imminent likelihood of that happening.'
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