Outlook: Legal & General

IT SEEMED a very clever idea at the time. NatWest would put a "floor" of 210p a share under the value of its offer for Legal & General by topping up according to a formula the stock element of the bid if its own share price began to fall. In the old days, this effect would have been achieved by "underwriting" the bid in the market. But that was expensive and nobody does it any longer.

However, there was plainly going to be a point at which NatWest's own shareholders would baulk at the extra dilution entailed in the top-up. With the NatWest share price falling by the day, that point was crossed some time ago and the "floor" mechanism has now become redundant. Today, the see-through value of the NatWest offer is only 190p a share and falling.

Whether this is now low enough to tempt a rival bidder is anyone's guess, but David Prosser, chief executive of Legal & General must be starting to feel distinctly uncomfortable. The last thing he wants is to be accused of selling his shareholders short in pursuit of the "big" job he stands to get in the new NatWest combine. So far, NatWest has struggled to convince the City of the merits of this takeover, though its case has hardly been helped by the short selling of its stock by arbitrageurs. It is going to have to work hard in the weeks ahead to turn the tide.

Outlook@independent.co.uk