Decision day for Abbey £8.5m bid

THE board of struggling banking giant Abbey will meet today to discuss an £8.5bn takeover offer from Banco Santander amid growing speculation that the deal could be signed early this week.

The board of the Spanish bank - the world's 14th biggest worth £30bn - will also meet in their Madrid headquarters today to finalise the terms of the deal, expected to comprise a mixture of cash and shares.

Special arrangements are likely to be made for the millions of small shareholders who were given stakes when Abbey converted from a building society to a bank in 1989 and who are unlikely to want euro-denominated shares in a Spanish bank.

It is believed that the takeover approach has the backing of Abbey's chief executive Luqman Arnold and other board members. The offer from Santander is expected to be pitched at between 550p and 600p a share, but the final price will depend on the Spanish bank's share price on the day the deal closes.

Santander's shares fell on Friday on the news and trading was suspended. In contrast, Abbey leapt 87p to close at 580p. But insiders cautioned against shareholders getting carried away and expecting a huge premium for their stock.

They point out that analysts had earlier calculated that a fair value for Abbey's shares was 427p. However, the bank has been trading at an average of 480p over the past two months after takeover rumours first hit the stock.

The sharp movement in its share price prompted the Takeover Panel to ask Abbey to clarify whether it was in merger talks.

Abbey, which is advised by Morgan Stanley, and Banco Santander, whose advisers are JP Morgan and Goldman Sachs, held informal discussions in April.

But no price was discussed as Santander was concerned about the liabilities of Abbey's life insurance operations. One insider said: 'Abbey seemed to be constantly pouring capital into the life insurance business. Santander needed to know when it was going to end.'

The Financial Services Authority ruled last week that there was no black hole in Abbey's life insurance operations, prompting Santander to return with a firm offer.

The role of Royal Bank of Scotland is also under scrutiny. It has a relationship with Santander dating back to 1988, and has a 2.87% in the Spanish bank. Royal Bank's chairman Sir George Mathewson is a non-executive director of Santander, while Emilio Botin, chairman of the Spanish bank, and his colleague Juan Incirate are non-executive directors of the Scottish bank.