Alliance & Leicester Put into Play as Possible Takeover Candidate

Strategic Insights -

Alliance & Leicester, a former building society, was put into play as a potential takeover candidate after reports surfaced that it is seeking a merger with the Woolwich. This move could create the UK's third-largest mortgage lender, worth around £10 billion in market capitalization. The possibility of a bid has sent shares in Alliance & Leicester soaring 22p to 801p in a falling market.

Key Takeaways:

  • Alliance & Leicester is reportedly seeking a merger with the Woolwich to create the UK's third-largest mortgage lender, worth around £10 billion in market capitalization.
  • The merger would be the first between two major demutualized lending institutions.
  • Lloyds TSB is tipped as the most likely bidder, with some analysts believing it would do its best to scupper any alliance between the two institutions.
  • Any deal would require the agreement of 75% of shareholders under rules governing the converting building societies.
  • Lloyds TSB and Alliance & Leicester already have close connections through Post Office Counters and Alliance & Leicester owns Girobank.
  • Alliance & Leicester earns 50% of its profit from its traditional mortgage business.
  • The company's CEO, Mr. White, preferred growth through organic means and acquisitions, rather than a merger.

Statistics:

  • Shares in Alliance & Leicester soared 22p to 801p in a falling market.
  • Woolwich shares shot up 4p to 322p in early trading before giving up some of the gains.
  • Market capitalization of Alliance & Leicester: around £4.5 billion.
  • Market capitalization of the Woolwich: around £5 billion.
  • Potential bid price: up to £10 a share.
  • Number of shareholders required to agree to a bid: 75%.

Sources:

  • "A&L fuelled the rumours by refusing to deny the report that it would like to pursue talks with the Woolwich," - Alliance & Leicester spokesman
  • "Lloyds would have to make sure it didn't happen," - Inigo Elsberg, analyst at Panmure Gordon
  • "You can bet your bottom dollar that Alliance & Leicester and the Woolwich will go at some time," - Inigo Elsberg, analyst at Panmure Gordon
  • "It's the same problem as ever. Management have got to get together and agree," - Analyst (name not specified)
  • "Lloyds TSB is still firmly on the acquisitions trail. Only last week chief executive Peter Ellwood reiterated its stance that it would like to buy a mortgage institution," (Source not specified, but implied to be from the text)