Lloyds to revive bid for C&G: Bank will redistribute payments to take into account court decision against initial offer

LLOYDS Bank's pounds 1.8bn offer for Cheltenham & Gloucester Building Society is to be revived in mid- August in a new deal that will exclude payments to some customers but pay out significantly more to others.

This follows a court decision last month that under building societies' legislation only members of more than two years' standing can be paid in a takeover bid for a society.

The society said in court that 27 per cent of its one million savers would be ineligible for payments. The court also stopped payments to borrowers altogether.

The money they would have received is now expected to be distributed to the rest, who will receive substantially higher payments.

The original offer was pounds 500 cash for every saver and borrower, plus 10 per cent of the balance in savings accounts up to a maximum payment of pounds 10,000.

C&G may also announce a new cut-off date for eligibility to vote that could bring more customers into the payment net. The original qualifying date for the percentage payment was holding an account on 31 March.

One possibility for a new cut-off is the day of the court judgment last month when C&G stopped accepting new voting members.

C&G made clear its intention of sticking by the court judgment when it announced that it would not appeal against it.

In the City this was taken as a sign that the deal would go ahead, and the Lloyds Bank share price rose 24p to 557p. Investors believe there will be big benefits to Lloyds when it gains C&G's share of the mortgage market.

The society said it was 'confident that it will be able to present a revised plan for distribution of the pounds 1.8bn consideration which will meet the terms of the (court) judgment and receive the support of members.'

Brian Pitman, chief executive of Lloyds Bank, said: 'The goals of the proposal and the fundamental benefits for both firms remain unchanged.'

Although 27 per cent of C&G members have had accounts for less than two years, this number may be shrinking.

The key problem is that three- quarters of those voting must approve the takeover. Analysts saw a risk that the 27 per cent might be mobilised to vote against the deal which - if there were enough abstentions by other voters - could scupper it. The motive for voting against would be that, given enough delay, everybody would eventually become eligible for payment if another offer came later.

Some analysts now believe the 27 per cent estimate was too high. Furthermore, if C&G sets a new cut-off date two to three months later than the original one, more voting account holders would have had accounts for two years.

At the same time, the proportion of voting members who cannot be paid is shrinking because the society has taken on no new voting ac

counts since mid-June when the court decision was announced.

Analysts suggested the number of voters ineligible for payment could now be 20 per cent or less.

There is a second big hurdle - borrowing members have a separate vote and must approve the takeover by a majority.

The court found they cannot be paid even though they can vote. It was this part of the decision that was most likely to have formed the basis of an appeal by C&G.

But C&G's newfound confidence almost certainly means that its computer analysis of accounts has confirmed that a significant majority of borrowers are also savers, are eligible for both votes and can be paid as savers. This should give the yes vote a majority.

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