THE audience is getting impatient for the “Crosby show” — the time when James Crosby, chief executive of HBOS, takes the stage and formally launches a rival £8.3 billion takeover bid for Abbey National.
But Abbey investors may have to wait a little longer. HBOS and its advisers are still examining competition hurdles and how the bid could be structured. Crosby is also likely to wait until Abbey sends out takeover documents next month.
However, the waiting time appears to be serving Crosby’s interests well. It has been four weeks since Emilio Botin, chairman of Spain’s biggest bank, Banco Santander Central Hispano, announced his intention to buy Abbey in a deal largely financed by paper.
Until that point, British investors knew little about the bank or its big exposure to the volatile Latin American markets. That has changed. The Spanish bank’s corporate governance — or lack of it — has helped to fill the August news vacuum and “Santander bashing” has become a national sport.
From its new global headquarters on the outskirts of Madrid, to its 36-seater Falcon Lear jet and its lavish pension arrangements for past and previous executives, Abbey investors know now a lot more about their suitor than they did before.
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These revelations, which include the fact that the bank’s former chairman was given a £29m payoff, have deflected attention from the merits of Santander’s bid. They also appear to have encouraged some of Abbey’s big investors to press for a British solution rather than support Europe’s largest-ever cross-border banking deal. While this has been going on, Crosby has been in no rush to take the stage.
As one shareholder said: “The news has certainly firmed up our preference of a UK offer.” Many fund managers appear confident that while there are significant competition issues for a merger between HBOS and Abbey, they are not insurmountable.
One said: “The Competition Commission has been fantastically inconsistent in the past. It didn’t stop Royal Bank of Scotland getting more than 30% of the small-business banking market when it bought NatWest, so it shouldn’t just block an Abbey-HBOS merger simply because it would concentrate more than 30% of the mortgage market. Even so, we are all expecting a referral.”
To help prepare the ground, Crosby is planning to meet Brandes, the American value fund manager, which despite offloading some of its stake last week still owns 8.6% of Abbey. The meeting was arranged before Santander’s approach to Abbey, but Crosby knows the American investor will want to know his intentions.
The HBOS chief executive has already been encouraged by a number of his own investors to mount a rival bid, but he still needs the support of others. One said: “Investors are fairly united in their desire for a UK solution. We have been making encouraging noises to HBOS and indeed to any other British banks that want to come forward. We have had conversations with brokers who have passed on our views to Lloyds TSB, for instance.”
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He added: “Nobody really wants Spanish paper — not private investors or British institutions. We would just have to sell it straightaway or pass it on to our European counterparts.”
HBOS and Lloyds TSB, which is also considering entering the fray, both know they face big competition obstacles. Lloyds had its own bid for Abbey blocked three years ago — and on the face of it little has changed since then. This has not stopped Lloyds hiring Deutsche Bank and it has not ruled out a bid.
If HBOS — which is being advised by Lazard, Cazenove and the law firm Allen & Overy — were to succeed in acquiring Abbey, it would create a giant in British retail banking with a market value of more than £35 billion.
The combined group would have 34% of the domestic mortgage market, about 25% of the savings market, 40m retail customers, 92,000 staff and more than 1,800 branches.
There would also be a huge branch overlap, with two-thirds of Abbey’s branches being located within half a mile of an HBOS branch. This would lead to closure and redundancies which some analysts have estimated could be as high as 9,000 employees. The total savings have been estimated at as high as £600m.
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HBOS, which was formed three years ago through the merger of Halifax and the Bank of Scotland, knows all about how to take out costs, and it is now ready to repeat its previous success with another deal.
Advisers to Santander said they were concerned that if the HBOS bid were referred, it would lead to a six-month competition inquiry that could damage Abbey’s business.
They point to the damaging effect on Safeway, the supermarket group, which was embroiled in a long competition inquiry when it was the subject of a bid battle among rival retailers. To encourage investors not to sell out to Santander, HBOS is expected to offer a higher price, with more cash.
One fund manager said: “From what we are hearing, HBOS is planning to put in a bid within the next fortnight. They also explained to us that they would be planning to put in a high offer in an attempt to prove their commitment and try to maintain shareholder interest throughout a Competition Commission referral.” Santander does not face competition issues here and EU authorities have fast-tracked the bid.
Botin must have factored this in before he made his approach. He is used to big deals, but perhaps he is not used to the financial press closely examining and questioning his affairs and his family control at the bank. However, he must have known that if he were to acquire Britain’s sixth-biggest bank, it was never going to be without a fight.
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Analysts said that to win, Botin will have to offer more cash and put in place a secondary share listing on the London Stock Exchange. Santander did previously have a London listing, but it was cancelled because it was not sufficiently liquid.
The phoney war that has taken place since Santander first made its move is likely to continue for a while longer and those who want a quick conclusion are not going to have their way. Botin is going to have to dig in and sit this one out and come to terms with the fact that cash speaks louder than words.