BoS may be looking at Abbey counterbid

Bank of Scotland has sent a "put up or shut up" message to Abbey National and is preparing to bolster its position by appointing Dresdner Kleinwort Benson, Abbey National's former advisor, to its City team alongside Credit Suisse First Boston. The DKB appointment, which is expected to be confirmed today, will fuel talk in banking circles that far from agreeing to be taken over as Abbey proposed last week, Bank of Scotland is looking at a so-called "pacman" counterbid for the larger bank as a potential option. Pacman was the 1980s computer game, in which a smaller character turns and gobbles up a larger one.

Bank of Scotland has sent a "put up or shut up" message to Abbey National and is preparing to bolster its position by appointing Dresdner Kleinwort Benson, Abbey National's former advisor, to its City team alongside Credit Suisse First Boston. The DKB appointment, which is expected to be confirmed today, will fuel talk in banking circles that far from agreeing to be taken over as Abbey proposed last week, Bank of Scotland is looking at a so-called "pacman" counterbid for the larger bank as a potential option. Pacman was the 1980s computer game, in which a smaller character turns and gobbles up a larger one.

In his response to Tuesday's request by Lord Tugendhat, the Abbey chairman, for takeover talks between the two banks, Sir Jack Shaw, the Bank of Scotland Governor, yesterday wrote to Abbey demanding that it put a price on the table before any further discussion could take place.

BoS's advisors believe that Abbey lacks the investor support to mount a convincing bid for the Scottish bank. DKB knows Abbey well having handled the 1989 flotation of the bank and several of its acquisitions. It had to step down last year when it was recruited to advise National Westminster Bank on its defence against the takeover bid from Bank of Scotland.

To justify a recommendation the Bank of Scotland board would need a headline price of at least 950p a share - or £12bn in total - a premium of more than 35 per cent on last night's closing price of 695p. It would also require a large element of cash, since Abbey's share price would almost certainly collapse if there was a suggestion that it was seriously prepared to mount a hostile bid for BoS. That would render Abbey highly vulnerable to a potential counterbid from either Lloyds TSB or Barclays.

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