Is it gain or pain in Spain for Abbey?

Melanie Bien sees beyond last week's headlines and asks what the sale of the bank would mean for small investors

Abbey shareholders have plenty to ponder this weekend after last week's announcement that Banco Santander Central Hispano has made an £8bn takeover bid for the bank.

Abbey will write to shareholders next month, advising them to accept the offer. An extraordinary general meeting will also be called, probably in October, when shareholders can vote on the proposed takeover. If the bid is approved, Abbey shares will be cancelled and its shareholders will become Santander shareholders. They will also get a cash payout.

Abbey hopes the takeover will be completed by the end of the year. But how would it affect shareholders and customers?

Who is Banco Santander and is the takeover bid good news for Abbey?

Santander is the second-largest banking and financial group in the eurozone. It operates through offices and subsidiaries across Spain and other European and Latin American countries.

Santander has not revealed details of its plans for Abbey; more information will be sent to Abbey shareholders next month.

"It is good that something is happening to Abbey, as it has been drifting along for some time now with not much sense of direction," says Patrick Connolly, research and investment manager at independent financial adviser John Scott & Partners. "But the jury is still out on whether Santander is the right bank to take over Abbey."

I'm an Abbey shareholder - what's in it for me?

You will get one Santander share for each Abbey ordinary share, plus 31p per share in cash to be paid as a special dividend. This means you will have to pay income tax on the payout.

How much does that work out at?

Those shareholders hoping for a windfall are likely to be disappointed, says Mr Connolly; they will probably not be any better off than they are now. Based on the closing price for Santander's shares on 22 July and taking an exchange rate of €1.50545 to £1, the bid offer values each Abbey ordinary share at 584p.

When would the dividend be paid?

The Abbey full-year dividend for 2004 will be paid on 4 October. This will be 8.33p per share, the same as last year. Shareholders will also receive Santander dividends in the third and fourth quarters of this year.

Where are Santander shares listed?

On the Madrid, Milan, Lisbon, New York and Buenos Aires stock exchanges.

Does this mean my shares would be priced in euros? And if so, doesn't this present a currency risk?

Yes, there is a currency risk, warns Philip Browne, director of sales and marketing at stockbroker Killik & Co.

"Part of the issue for private clients is what they actually get if they hold shares in a Spanish bank," he says. "As well as the currency fluctuations you will be exposed to, there are question marks over how you would sell your shares, how you get information about the company and how you track your investment.

"In those terms, it doesn't look that attractive a deal."

Would dividends be paid in euros?

Shareholders will be able to choose whether to receive dividends in euros or sterling. Mr Connolly advises sterling because converting small amounts from euros would be costly and inconvenient.

Would I receive any other benefits?

Dividends will be paid quarterly. Existing Santander shareholders receive discounts on luxury food and wine and 21 per cent off medical insurance.

How likely is it that the takeover will be approved?

There is a chance that another bank could make a rival bid for Abbey. Citigroup, for example, is rumoured to be interested, although it has denied this.

"Abbey shareholders would prefer a cash bid rather than shares in another bank but I think there is a less than 50 per cent probability that this will happen," says Graham Neale, director of Killik & Co. "It is also possible that shareholders will reject the bid but we think this is unlikely."

I can't find my share certificate and have forgotten how many shares I own. How do I find out?

Contact Abbey's Shareholder Services on 0870 532 9430.

What happens if I hold my shares in a single company personal equity plan (Pep) or individual savings account (ISA)?

Your shares will be registered on your behalf with a nominee holder, so refer to the Pep or ISA manager of your plan for more information.

I'd rather have cash than the shares. Is that possible?

Santander plans to provide a share dealing facility for shareholders with 2,000 shares or less, available through Abbey branches. The proceeds should be available in sterling rather than euros.

I have an Abbey mortgage and current account. How does this affect me?

It's business as usual for now, as you don't have voting rights unless you are also a shareholder. If the takeover does happen, keep an eye on rates to ensure you continue to get a good deal under the new owners. If rates start to look uncompetitive, consider switching to another provider.