Santander Resuces A&L for

123jump.com Staff
14 Jul, 2008
New York City

The largest euro zone bank Santander offered to purchase Alliance & Leicester for 317 pence per share. The deal values the company at 1.26 billion pounds and includes an interim dividend of 18 pence to shareholders. Santander returned to purchase the troubled UK lender at a lower price after three months as credit market weakness have persisted and A&L trades at nearly 50% lower price. The deal is fraught with risks at UK economy slows down and credit market remain jittery.

[R]10:00AM New York—Santander agrees to buy Alliance & Leicester for £1.26 billion.[/R]

Banco Santander SA, the largest Spanish bank said on Monday it had agreed terms for the take-over of troubled UK mortgage lender, Alliance & Leicester for nearly £1.26 billion.

Spain’s biggest bank, which has previously spanned a much expensive offer in February, offered an effective 299 pence per A&L share and expects to complete the deal by end of the third quarter. Santander refused to buy A& L when its stock was valued at 588 pence per share five months ago saying the offer was expensive for a struggling financial firm. Santander will also pay interim dividend of 18 pence per share.

Based on the closing price of the Santander stock at 11.23 euros on July 11, the last business day prior to the deal announcement, the acquisition of A&L at 299 pence plus dividend of 18 pence values the company at £1.259 billion representing a premium of 36.4% to the closing price of 219.25 pence of A&L share on the last business day. Including the dividend the deal values the company at 44.6% premium.

The proposed deal would boost Santander''s presence in the UK and the Spanish bank hopes to merge Alliance & Leicester with Abbey, a complimentary business it acquired four years ago.

Santander hopes the deal to be accretive by the end of 2009 and generate return on investment of more than 18% by 2011. If the current turbulence in the wholesale banking market persists and the incipient in the UK economy weakness develops into a full blown recession, these profit targets may be hard to achieve. A&L depends for more than 55% of its funding on the securitization markets. The credit markets are essentially shut to mortgage lenders from the U.S, UK and Australia.

Santander chairman Emilio Botin said: """"We are very pleased to be working with the management and employees of A&L as we seek to build with Abbey one of the leading franchises in the UK banking sector.""""

The merged entity will hold 8% of the U.K market share with nearly 1,000 branches. Through the merger, Santander said it hoped to cut U.K costs by up £180 million. For the three months to March, Abbey posted a profit of £311 million, up 4% from a year ago.

Unlike Northern Rock, Alliance & Leicester, has not sought financial rescue from shareholders and is recommending the bid to its shareholders, who will have to consent to the deal.

The British mortgage-lender said the difficult world financial markets made the deal more attractive. """"A&L is a strong and attractive business and its resilient performance is proof of the quality of its franchise,"""" said its acting chairman Roy Brown.

""""However, the board is acutely aware of the significant external risks presented by the deterioration in economic conditions and the continuing turbulence in the financial markets.""""

Shares of Alliance & Leicester rose as much as 50% in early trading in London to 312.25 pence after it revealed Santander’s bid. Over the past 52 weeks, the stock has reached a high of 1,170.00 pence and traded at a low of 213.250 pence.

Alliance, which last year wrote down £400 million in bad home loans, has reduced the number of mortgages it sells and pushed up interest rates, as cover for the credit crisis.

Several other U.K lenders have had to ask from shareholders for additional cash, as the crisis deepened.

Royal Bank of Scotland Group has already raised about £12 billion while HBOS is looking to raise £4 billion and help ease the impact of the credit turmoil. Barclays Bank plc has issued 1.5 million new shares seeking to raise £4.5 billion.

Alliance & Leicester plc is a financial services group that operates in four business sectors: mortgage lending & investments, personal banking, commercial banking and treasury. The group provides general insurance, life assurance, unit trusts, personal current account and credit cards, asset financing and commercial lending.

Madrid based Santander, the banking and financial services group is the sixth largest banking group in the world and the largest in the euro zone with a market cap of 70 billion euros.

Santander is advised for the deal by Merrill Lynch and A&L is advised by JP Morgan Cazenove, Morgan Stanley and Rothschild.