Abbey supremo rakes in £3.6m

ABBEY has become the bank that likes to say 'Si' after its board accepted an £8.9bn bid from Banco Santander Central Hispano.

The deal will certainly enrich Luqman Arnold, Abbey's chief executive. City wags were last night dubbing him Lucky Luqman, as he stands to make up to £3.3m in shares and options when the deal completes. He will also turn a £350,000 profit on the £1.7m of shares he bought with his own money.

But others are less happy. If it goes through, the deal spells an end to more than 150 years of proud independence for the Abbey, a disappointing outcome for many loyal shareholders.

Abbey shares ended the day down 23p at 557p as traders were underwhelmed by the Spanish offer. The Bolsas Valores market in Madrid also gave it the thumbs-down, knocking 2.6% off Santander shares.

The proposal of one Spanish bank share for every Abbey share held, plus 31p in cash, values the UK bank at 609p a share.

That is a significant improvement on the lows of 420p Abbey has plumbed as recently as May. But many small shareholders will be apprehensive, if not angry, that one of the most familiar names on British High Streets is falling into foreign hands.

Many in the City believe that Santander has failed to deliver a knockout bid, leaving the door open for rivals. Speculation has been rife that there may be a counterbid from Royal Bank of Scotland, Lloyds TSB or Citigroup of the US.

These hopes are tempered by the fact Abbey's management recommended the bid from Santander chairman Don Emilio Botin.

RBS, which has close ties with Santander, would love to grab Abbey but believes it may be blocked by the competition authorities. Lloyds TSB faces similar issues. Citigroup appears more interested in buying credit card and mortgage books than whole companies.

What is abundantly clear is that Arnold and his lieutenant Stephen Hester have no desire to emulate Marks & Spencer's management, which saw off marauder Philip Green. Indeed, while Arnold is staying on until June to help the Spaniards, Hester has already lined up a new job as chief executive of British Land.

'Why would we choose to do this deal now?' said Arnold. 'We believe it is a very good deal for shareholders. It is a good price,' He added that the regulatory risk was low. City cynics have long expected him to sell out at the first scent of a bid.

Banco Santander is keen to join the big league of the world's most powerful banks. It is also eager to diversify away from its large Latin American exposure into less

volatile parts of the world. Botin said yesterday it is 'a once in a lifetime chance' to gain 18m clients in the profitable UK market. He reckons he can squeeze £375m from Abbey through 'cost and revenue synergies' in three years.

That may come at the cost of thousands of UK jobs. Santander plans to install a new state of the art technology platform, which will probably result in the closure of three out of five of Abbey's IT sites. Botin also indicated he was not committed to keeping the group's troubled life assurance operations,

Scottish Mutual and Scottish Provident, which employ around 3,000 in Glasgow.

The takeover is being done through a scheme of arrangement which has to go through the courts.

An extraordinary general meeting of Abbey shareholders will take place in October, and provided they vote in favour, the transaction will be completed by year-end.

The Spanish deal may well be the best one on offer. But it is still a sad end to Abbey's 150 years of independent history.

Welcome escape for shareholders

BANCO Santander's bid gives Abbey's 1.7m small shareholders the chance to step off the downhill slalom they have endured for the last three years.

So is the £8.9bn offer a good one? It is certainly a lot lower than the £18bn shareholders might have scooped in a proposed bid three years ago by Lloyds TSB, which was scuppered by the competition authorities.

But Abbey won't see its £13 peak again in a very long time, and the Spaniards are offering a handsome premium on the 420p a share the City reckons is 'fair value' without a bid.

Hopes are high that rival bidders may pile in with better offers. But some analysts are sceptical. Norrie Morrison, of broker Fox-Pitt Kelton, said: 'Everyone is hoping for something better, but quite frankly this is probably as good as it gets.'

Hilary Cook, of Barclays Stockbrokers, added: 'The fact that the board has recommended the bid speaks volumes.

'It suggests that they don't believe there is anything better out there.'

One practical barrier is the dislike of many small investors for holding shares in overseas companies.

Those who do not want shares in Santander will be offered special easy selling facilities.

The deal will leave many who bought in the last three years out of pocket. Most private investors, however, received their shares free in the former building society's 1989 float.