Bank of Scotland spurns bid approach by Abbey National

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The Independent Online

Lord Tugendhat, the chairman of Abbey National, was last night seeking a fresh meeting with Sir Jack Shaw, governor of Bank of Scotland, after the Scots flatly rejected a proposal for an agreed takeover by Abbey of the Scottish bank.

Lord Tugendhat, the chairman of Abbey National, was last night seeking a fresh meeting with Sir Jack Shaw, governor of Bank of Scotland, after the Scots flatly rejected a proposal for an agreed takeover by Abbey of the Scottish bank.

Peter Burt, BoS's chief executive, was yesterday said to be furious at what he saw as attempts by Abbey's chief executive Ian Harley to bounce him into a deal on Abbey's terms after earlier this year rejecting an agreed merger approach from the Scottish bank.

BoS said it believed it "unlikely" that the proposed structure "will lead to a satisfactory transaction for Bank of Scotland's shareholders".

Banking sources last night said Abbey was now hoping that the chairmen could cool tempers and avoid the situation turning into a bitter personal battle between the two chief executives over who is best qualified to run a combined group. It is counting on shareholders of both banks refusing to accept that a deal that makes strategic sense could founder because of a row over who gets the top job.

However, bankers said they believed Mr Harley may have overplayed his hand by overestimating the readiness of the City to back him in preference to Peter Burt. There were suggestions last night from the Abbey camp that there might not be room for Mr Burt under the agreed takeover scenario.

Sources said the deal which Lehman Brothers and UBS Warburg, Abbey's advisers, presented to BoS's advisers CSFB and Morgan Stanley would actually leave Abbey shareholders worse off than the no-premium deal Abbey rejected this year.

To get the agreement of BoS, a takeover bid would have to be pitched at a premium of 40 per cent to Thursday's closing share price, or 950p, valuing the bank at £12bn. This would require the issue of new shares.

One observer said: "I don't think Abbey National shareholders are as ready as Mr Harley thinks to accept a deal which gives them 6 per cent less of the bank and a management structure which is not optimum from their point of view."

Estimates yesterday suggested Abbey National shareholders would end up under this scenario with 54 per cent of the enlarged group, leaving them worse off than under the no-premium merger structure proposed by BoS, which would have given them 60 per cent.

Details of the extent of the contacts began to emerge after a leak of the latest round prompted an exchange of regulatory announcements yesterday confirming there had been talks as recently as last week.

Talks between them go back to spring when Sir Jack Shaw approached Lord Tugendhat with the suggestion that they discuss a deal. The proposal is understood to have been structured as a no-premium merger, with Sir Jack stepping down in favour of Lord Tugendhat, who would be chairman of the enlarged group. Mr Burt would have been chief executive and Mr Harley chief operating officer. Talks continued over the summer before Abbey broke off in August to focus on its bid for Scottish Provident, the life insurance group.

When Abbey came back last week it proposed structuring the deal as an agreed takeover with Mr Burt, 58, becoming chairman and Mr Harley chief executive. The proposals were rejected.

Shares in both banks gained sharply yesterday, suggesting that the City backed the principle of marrying BoS's broader banking skills with Abbey's size. BoS shares closed up 14p to 695.5p. Abbey's shares rose more sharply, up 71p, or more than 7 per cent, to 1,045p.

Analysts said they saw a strong possibility the deal would fail and Abbey would be put into play. Barclays Bank and Lloyds TSB were watching the position closely, although bankers said neither would be as keen to become embroiled in a messy counterbid for either or both banks as some City commentators believed.

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