A&L shares fall as prospect of counter-bid to Santander fades

Alliance & Leicester shares fell yesterday as hopes dimmed of a counter-bid to trump Santander's £1.3bn offer for the bank.

The shares dropped 3.2 per cent to 324.5p, leaving them just 5 per cent higher than the 308p value of Santander's bid, including a proposed interim dividend.

A number of analysts said a rival offer was unlikely to emerge because few competitors had the capital or the appetite to enter a battle with Spain's biggest bank over A&L.

Citi analysts said: "Santander can extract c44p per share of synergies from the acquisition of A&L. After accounting for the additional £1bn of capital that Santander is investing to offset future losses, we estimate that the bid represents fair value for both parties. Although other UK banks may be able to generate similar cost synergies, we do not find any other combination as compelling."

On a grim day for banking shares, the Citi analysts added that the Alliance & Leicester deal offered little hope for a change of mood about the sector's valuation.

"Not only is Santander one of a few large-cap banks able to take on a balance sheet the size of A&L, but its Abbey business meant this deal offered both attractive financials and the opportunity to expand its existing UK footprint," they wrote in a note to clients.

If the Santander deal goes through as expected, Alliance & Leicester's four executive directors will not be entitled to any of the shares awarded under three incentive plans. David Bennett, the chief executive, has 236,000 such shares, but they are all "under water" because the strike price for awarding them is way above the bank's depleted share price. However, the remuneration committee has discretion to award some of the shares amassed in a separate performance plan, under which Mr Bennett has 89,777 shares.

If the directors' contracts are terminated due to a change of control, they are entitled to a year's salary and pension plus a year's life and medical insurance cover. The remuneration committee can also award a cash bonus for the period worked.

Santander rushed the deal through over the weekend and stunned the market with Monday's announcement. The Spanish bank had kept a close watch on the UK bank since it rebuffed an approach in December, which was not for a full takeover.