Halifax set to forego takeover protection

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The Independent Online
Halifax Building Society yesterday gave the clearest indication yet of its intention to go on the acquisition trail immediately after it de-mutualises and floats on the stock market next June, by announcing that it will not use rules giving it five-year protection against takeovers.

The society's de-mutualisation plan will involve a reverse takeover into one of its existing subsidiary companies, rather than floating through a specially created firm. By doing so, the Halifax forfeits the five- year protection against takeovers available to floating companies.

In return, it will gain far greater access to capital that would have to be set aside, via a so-called Priority Liquidation Distribution Right (PLDR), to protect policyholders in the event of going into liquidation.

Rob Thomas, building societies analyst at UBS, the Swiss banking group, said the device would give Halifax access to about pounds 3.5bn of extra funds in the first year of its life as a PLC, based on its existing general reserve. The money could help fund takeovers if the society chooses.

He said it made little sense for Halifax to avoid taking on its PLDR responsibilities, part of the Building Societies Act of 1986, unless it proposed to mount takeovers almost immediately.

"It seems to me to be a perfectly reasonable conclusion to draw," Mr Thomas said. "In year one, 50 per cent of the general reserve has to be set aside as part of the PLDR. But the drain caused by the PLDR unwinds quite quickly. In year two it is already down to 25 per cent and it falls sharply after that."

David Gilchrist, director of corporate affairs at Halifax, said policyholders would still be protected by a depositor protection scheme.

He added that the society's reverse takeover flotation plans would give it "added flexibility" to develop the business. "We are not planning to take over a merchant bank," he joked.

John Stewart, chief executive of Woolwich Building Society, said his organisation would not be following suit when it floats next year. "What would worry me is if there is some over-capitalised bank with money burning a hole in its pocket. Consumers would get a raw deal."

More than 9 million members of Halifax will receive an updated timetable, with more details of the society's flotation plans, early next month.

To qualify for a vote, savers must have at least pounds 100 in their accounts on 31 December.