Concern over Bank of Ireland A&L deal

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The Independent Online
THE BANK of Ireland was last night in urgent talks with the Irish government in a bid to meet concerns that plans for an pounds 11bn merger with Britain's Alliance & Leicester could spark a free-for-all for Ireland's companies.

The two banks are expected to confirm the merger talks in a detailed statement to the London and Dublin stock exchanges this morning and to reach full agreement on a merger before the end of this week.

Bank of Ireland had been hoping for more time to allow regulatory hurdles to be cleared before going public, but its hand was forced when the talks leaked over the weekend.

With BoI's bigger rival, Allied Irish Banks, believed to be a possible bid target for both Lloyds-TSB and Deutsche Bank, and Irish Life's independence far from guaranteed even after its recent merger with Irish Permanent, there is some concern in Dublin that the merger could start a takeover frenzy for what remains of Ireland's independently quoted financial sector.

In the City this is being viewed as a possible deal-breaker, despite a strong desire on the part of both banks to do the deal. The merger is being structured in a manner which JP Morgan, investment bank adviser to Alliance & Leicester, thinks might address these concerns.

Bank of Ireland and Alliance & Leicester will retain stock exchange listings in London and Dublin and keep their existing brand identities in Ireland and the UK, while operations will be pooled under one management team, a structure similar to that operated by the Anglo-Dutch companies of Unilever, Shell and Reed Elsevier.

Advisers acknowledge the risk that a hostile bidder might make a move on BoI, though they believe this to be unlikely. Both Lloyds and Barclays are being cited as potential gatecrashers. Alliance & Leicester is protected against takeover until 2002.

"It raises all sorts of questions about the independence of all the top Irish companies," said one analyst yesterday. "These are bound to be sensitive discussions."

The plan is to have a combined board composed of equal numbers of representatives from each bank. Today's statement is expected to confirm that Peter White, the Alliance & Leicester chief executive, is to take that post in the merged group, with Maurice Keane, Bank of Ireland's chief executive, taking the job of chairman.

The dividend pool will be split 55 per cent to 45 per cent in BoI's favour, reflecting its larger market capitalisation of just over pounds 6.34bn against pounds 5bn for Alliance & Leicester.

Alliance & Leicester is expected to highlight the potential cost-savings from combining the computer and back office processing systems of the two groups as well as from eliminating overlaps between its extensive UK branch network and that of Bristol and West, the UK building society which Bank of Ireland took over in 1997.

As much as half of the pounds 200m a year benefits expected to flow from the merger are targeted to come from so-called revenue synergies - that is, higher sales from the cross-selling of BoI's stockbroking, life assurance and asset management services through Alliance & Leicester's UK branch network.

This was being viewed sceptically in the City yesterday, with the cost- cutting potential of the deal generally regarded as poor set against the pounds 800m that the Royal Bank of Scotland's mooted merger with Barclays would yield. "This is not Barclays/NatWest," one analyst said.

Bank of Ireland is also believed to be insisting on maintaining the Bristol and West brand, despite Peter White's belief that the Irish have been too slow in getting to grips with its high cost-base.

An added drawback is that the full integration of Bristol and West would need a new Act of Parliament.