Lloyds TSB unveiled details today behind its £12.2 billion takeover of ailing Halifax Bank of Scotland.
The deal, which is subject to shareholder agreement as well as ratification from the Financial Services Authority, will create a new banking giant with around a third of the mortgage and savings markets. It will be headed by Lloyds TSB's current chairman and chief executive.
HBOS chairman Dennis Stevenson said: "This is the right transaction for HBOS and its shareholders."
Chancellor Alistair Darling confirmed today the Government has decided to "waive competition requirements" in relation to the takeover. He said he wanted to put beyond doubt the Government's desire to see the merger between the two banks.
"We have made a decision that we will waive the competition requirements in relation to these two banks. That is not going to get revisited."
He added: "As people, commentators, are saying, if we hadn't done it, the alternative was very bleak indeed. I think this was absolutely right."
Analysts have estimated that as many as 40,000 jobs could be lost from the banks' combined 145,000 staff. HBOS has 75,000 staff and the remainder work at Lloyds TSB.
The deal agreement said: "Significant cost savings can be made by combining the networks and back offices of Lloyds TSB and HBOS."
It added that the takeover would result in "cost synergies" of £1 billion by 2011, or around 10 per cent of the combined cost base.
There will be "elimination of branch duplication" in the retail arm. HBOS has 1,100 branches, and Lloyds TSB 1,900, including 160 of its Cheltenham & Gloucester arm.
There will also be "consolidation of head office functions", including human resources, finance and legal departments.
The deal comes after a run on HBOS shares this week which has seen the group's share price fall as much as 70 per cent.
It is expected the Government will waive competition rules to get the transaction through, and reportedly follows talks between Lloyds TSB chairman Sir Victor Blank and Prime Minister Gordon Brown.
Lloyds will offer 0.83 of its shares for each HBOS share, valuing them at 232p each.
Sir Victor will be chairman of the enlarged group under the deal, and Lloyds TSB chief executive Eric Daniels will continue in that role.
There was no word on the future role of HBOS chief executive Andy Hornby.
Commenting on the takeover agreement, Sir Victor said: "This will be a unique opportunity to accelerate and extend our strategy and create the UK's leading financial services group."
HBOS chairman Mr Stevenson said: "This is the right transaction for HBOS and its shareholders.
"Against the backdrop of the very high levels of volatility our industry is experiencing, the combined group will be one of the strongest players in the UK financial services sector. In addition, the combined group will have excellent brands and a very powerful franchise.
"We are recommending our shareholders vote for this transaction."
Mr Daniels declined to give details on the number of jobs that could be lost as a result of the merger.
Of the 40,000 figure estimated by analysts, he said: "Undoubtedly there will be some job losses. But I don't recognise that, it seems on the high side."
He added that no decision had been made about the future of various HBOS and Lloyds TSB brands.
Mr Daniels added: "I don't think there should be the impression that this is a shotgun marriage.
"This is something that has been looked at for a good long while."
He said the most recent talks between the two parties took place over the "past several weeks".
Business Secretary John Hutton confirmed the Government will push through the merger on public interest grounds to "ensure the stability of the UK financial system".
An order allowing this will be laid before Parliament when the House returns after the summer recess.
Currently public interest grounds cover only plurality of media ownership and national security. Mr Hutton's decision follows advice from the UK tripartite authorities - HM Treasury, Bank of England and the Financial Services Authority.
The FSA described today's takeover announcement as a welcome move.
It said: "As previously stated, the FSA is satisfied that HBOS is a well-capitalised bank that continues to fund its business in a satisfactory way. The announcement of the proposed merger with Lloyds TSB is a welcome move as it is likely to enhance stability within financial markets and improve confidence among customers and investors in the UK financial sector."
Unite deputy general secretary Graham Goddard said: "Finance workers should not have to pay the price for the greed and excess of the short sellers and speculators. Thousands depend on HBOS and Lloyds TSB for their livelihoods. Unite will oppose compulsory redundancies.
"We expect the restructuring plans to be agreed with the staff representatives at the bank. We are urging the banks to remember the real people working for them who are not responsible for the credit crunch."Reuse content