Spanish giant Santander poised to make £8bn bid for Abbey

Offer expected to be pitched at 550p to 600p a share * Spanish bank's board sets meeting for tomorrow
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The Independent Online

Spain's biggest bank is pre-paring to launch an agreed £8bn to £9bn offer for Abbey National, making it Britain's first major bank to be taken over by a European rival.

Spain's biggest bank is pre-paring to launch an agreed £8bn to £9bn offer for Abbey National, making it Britain's first major bank to be taken over by a European rival.

Santander Central Hispano confirmed it was considering an offer after Abbey disclosed in a Stock Exchange announcement that it had received an approach which could lead to a bid.

The offer is expected to be pitched somewhere between 550p and 600p per share. Abbey shares closed 18 per cent higher last night at 580p, valuing it at £8.56bn.

Santander came close to making a formal bid in April, but backed off. The trigger for its new approach was last week's confirmation from Abbey that it had no regulatory requirement to inject more money into its life businesses, Scottish Provident and Scottish Mutual.

Santander will hold a board meeting tomorrow to discuss tabling a bid for Abbey, perhaps as early as Monday.

Shares in the Spanish retail and commercial bank fell 5 per cent and were then suspended after investors grew nervous about the premium it might have to pay for Abbey.

Ending a protracted period of feverish speculation about possible bid approaches, Abbey issued a Stock Exchange statement saying: "Abbey confirms it has received an approach, which may or may not lead to an offer being made for the company. A further announcement will be made in due course."

Any offer that Santander makes would be likely to be in shares, though it is thought to be putting in place a mechanism for British shareholders to be able to sell their stakes for cash, possibly to Spanish institutions, if they do not want to end up owning shares in the Continental bank.

Analysts said Santander would make little in the way of savings by acquiring Abbey but would gain control of a bank with 18 million customers and 741 branches, and 11 per cent of the UK mortgage market.

The mooted price of 550p to 600p is thought to be a considerable increase on the price Santander initially discussed with Luqman Arnold, the chief executive of Britain's sixth-biggest bank, who flew secretly to Madrid to hold talks with his larger rival in early April. Mr Arnold then rejected the approach from Santander, which is valued at €40bn (£26bn), as too low. One of the major stumbling blocks at that time was Santander's fears that it would be left with a black hole in Abbey's life insurance businesses into which it would have to inject cash.

Santander's chief executive, Alfredo Saenz, has made it clear that he wants not only to use Abbey as a platform for expansion but also to squeeze cost savings out the UK bank. He said he had wanted to save £500m in annual costs at Abbey by getting rid of its out-of-date technology platform.

A tie-up between Santander and Abbey would break the mould of banking acquisitions in the UK which, until now, have largely been confined by national barriers because of the array of complex tax, cultural and political issues which are involved in cross-border deals.

However, a foreign bank has been the most likely buyer for Abbey for some time. Lloyds TSB failed to buy the former building society in 2001 because the Competition Commission ruled that there could be no more major tie-ups between British banks. Analysts said Santander's interest could nonetheless smoke out interest in Abbey from rival bidders, possibly including National Australia Bank, which has approached Abbey before.

Royal Bank of Scotland has also been suggested as a buyer for Abbey. City sources believe RBS could still test whether the competition authorities might have changed their mind about the banking marketbecause HBOS - the amalgamation of Halifax and Bank of Scotland - has in the past two years grown to be a very effective competitor to the big four.