Outlook: Bank of Ireland
Tuesday 25 May 1999
AFTER ALL that waiting and speculation, the stock market finally got a little bit of banking sector "corporate activity" yesterday (wonderful City expression this, as if to imply that anything as mundane as just managing and running a business is corporate "inactivity") - and a cross border transaction at that. Unfortunately it wasn't quite what everyone had in mind.
Bank of what and Alliance and who? This hardly looks like a transaction to set the pulse racing or the City's tills ringing. Even together these banks will scarcely be any larger in terms of market capitalisation than Royal Bank of Scotland, while the cross border nature of the merger doesn't make for mouth watering cost cutting potential or a clear line of management command. Indeed, it could very well be a recipe for bitter internecine management warfare and paralysis.
Still, something is better than nothing and the stock market duly marked the whole sector higher, confident in the hope that today's little rain drop might turn into tomorrow's deluge.
That may or may not be the case, but what of this particular tie up? If it were not so clearly defensive, it would certainly seem both odd and inappropriate. What do these two organisations hope to achieve? The cost savings at just pounds 200m are scarcely worth the bother, and in any case are probably not much higher that the two companies are capable of achieving independently.
Peter White, bored, restless and, by some accounts, looking for a move, gets a new train set to play with, but that hardly justifies the transaction from a shareholder value perspective. However, by the look of it Alliance and Leicester is getting the better half of the deal on another front too - 45 per cent of the action for just 42 per cent of the profits. Furthermore, its shareholders get a stake in one of the world's fastest growing economies.
In other respects, the merger looks defensive, tying the former building society up in an Anglo-Irish alliance that would be difficult to bid for, because of its key position in the Irish economy, and even more difficult to disentangle. Just the job for when A & L's takeover protection runs out in 2002, its executives must be thinking.
As for Bank of Ireland, it would seem to deserve better. With little room left to expand at home, and certainly no domestic merger prospect that the authorities would tolerate, it has no option but to look outside its own borders. But the Alliance & Leicester, a traditional mortgage lender in a mature, low growth market? Critical mass is gained, without apparent loss of independence, but it sure is an unexciting path for BoI to take.
It may also open the floodgates to other bidders, keen to break up this cosy little merger and gain a foothold in Ireland. It is unclear what position the Irish Government would adopt in the event of a bidding free- for-all, but Bank of Ireland may find it has opened Pandora's box.
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