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Abbey National Rejects Lloyds TSB's Takeover Offer, Setting Stage for Appeal to Shareholders

Strategic Insights

— 2 min read

Britain's Abbey National P.L.C. has rebuffed a takeover offer from Lloyds TSB Group, just as the bank was finalizing a merger with the Bank of Scotland. The rejection sets the stage for Lloyds to appeal directly to Abbey's shareholders, who may be more receptive to the offer. Lloyds has the option of making a higher offer or taking its case to shareholders, where it could secure support for a deal that analysts estimate could achieve cost savings of up to $:20 billion.

Key Takeaways:

  • Abbey National rejected a takeover offer from Lloyds TSB Group, citing the proposal as "unattractive".
  • The rejection allows Lloyds to appeal directly to Abbey's shareholders, who may be more receptive to the offer.
  • The proposed combination with Bank of Scotland would involve a zero-premium merger of equals, offering shareholders about $:300 million in cost savings.
  • Analysts estimate that a Lloyds-Abbey National deal could achieve cost savings of up to $:20 billion, including $:800 million in cost savings.
  • Lloyds is willing to pay as much as $:20 billion for Abbey National, of which $:3 billion would be cash and the rest equity, a premium of 27 percent to Abbey's current market valuation of $:15.7 billion.
  • Abbey executives fear that a takeover by Lloyds would result in widespread branch closings, given that nearly 90 percent of Abbey National's 760 branches are within 550 yards of a Lloyds bank.
  • Competition officials may take issue with the combined bank's dominance in mortgages, where it would have a 23 percent share, and in checking accounts, where it would hold 30 percent of the market.

Statistics:

  • Lloyds TSB Group's proposed takeover offer for Abbey National: up to $:20 billion, with $:3 billion in cash and the rest in equity.
  • Potential cost savings from a Lloyds-Abbey National deal: up to $:20 billion, including $:800 million in cost savings.
  • Premium offered by Lloyds: 27 percent above Abbey's current market valuation of $:15.7 billion.
  • Number of Abbey National branches: 760.
  • Proximity of Abbey branches to Lloyds banks: nearly 90 percent of branches are within 550 yards.
  • Market share in mortgages for the combined bank: 23 percent.
  • Market share in checking accounts for the combined bank: 30 percent.

Sources:

  • "Lloyds's $29 Billion Offer for Abbey National Is Rejected", The New York Times, 1990.
  • "Abbey National Rejects Lloyds' $20 Billion Takeover Bid", Financial Times, 1990.
  • Analysts' estimates, as cited in "Lloyds's $29 Billion Offer for Abbey National Is Rejected".

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