Jeremy Warner's Outlook: Spanish price for A&L is a miserable one but don't bank on rival offers

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The Independent Online

So farewell then Alan Gillespie, forced to resign as incoming chairman of Alliance & Leicester before he had even started in the job. With Banco Santander agreeing takeover terms, he will not now be taking up a posting which was announced only last week. One shouldn't speak ill of the dead, but it was perhaps just as well that his predecessor, Sir Derek Higgs, wasn't around to witness the humiliation of little A&L's surrender to Emilio Botin's Spanish armada.

Little more than two years ago, Sir Derek turned down a tentative takeover approach from Credit Agricole pitched at what, by today's standards, was the fabulous price of £13 a share. Even as recently as last December, there was meant to be £6.50 on the table from the present bidder, Banco Santander. You never know from the outside how real these reported approaches – or prices – are, but compared with the derisory 299p a share the board now feels compelled to recommend, almost anything looks good.

Santander's bid is a relief to banking regulators, who now have one less bank to worry about, and a boon to the sector – at least there are some players out there bottom fishing for banking assets – but it is a kick in the proverbial for shareholders. This is a rubbish price, paid almost wholly in paper of dubious quality.

For the time being, Mr Botin is the pin-up boy of the banking world, if there can be such a thing. Unlike the other partners in the break-up bid for ABN Amro, he's judged to have come out of it quids in. He's also avoided the sub-prime losses of his American and European counterparts. Yet is it really credible that a bank at the centre of an economy which seems to be in even worse shape than our own can for ever resist the rising impairment charges suffered by just about everyone else? I don't think so.

The price being offered seems like a big premium, but in fact it takes the shares back to where they were only a month ago. What's more, shareholders are being asked to accept paper in a company whose accounts are, by the standards of disclosure adhered to by British banks, a masterpiece of obfuscation. None the less, I wouldn't bet on David Cumming, head of equities at Standard Life, being right in assuming that a British bank is bound to counter.

The A&L board has only agreed because, with the economy weakening by the day, it sees no end to the banking crisis. Virtually all the credible counter-bidders would also face more challenging competition hurdles than Santander.

You might think that in these markets, almost anything goes in the drive to banking consolidation, but competition regulators won't want to see the rule book entirely ripped up for the sake of safer banks. In any event, they have the potential to create difficulties for rivals. In the meantime, we can only speculate on how different it might have been for cash-starved British banks if they had been offered the same sort of liquidity support Banco Santander has enjoyed from the European Central Bank.

Still, there's no denying Mr Botin is capitalising brilliantly on Britain's banking crisis. He already owns Abbey National and, by crunching it together with A&L, he gains crit-ical mass in the UK market. When the crisis is over, he'll be judged to have got his position for a song. He's also done the City a service in squeezing short-sellers.

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