Alliance & Leicester yesterday announced plans for a takeover bid by Spanish banking giant Santander, amid falling shares in a turbulent market.
The deal, worth £1.26billion, will offer existing Alliance & Leicester shareholders one Santander share for every three existing A&L
shares at a price of 299p per share.
The announcement came amid rumours the UK's seventh largest lender was suffering at the hands of the credit crisis. Shares in A&L had fallen significantly on the back of the Bradford & Bingley fiasco. As both lenders deal with the rocky buy-to-let mortgage
market, it was assumed by many that A&L would suffer the same fate as B&B have.
However, the takeover bid has quashed all rumours of imminent failure and strengthened the bank's reputation and position in the market. Santander already owns UK bank Abbey after a successful takeover four years ago.
As a joint venture it is thought that Abbey and A&L will become Britain's second largest mortgage
lender after Halifax. However, the deal is not yet done and it is reported that A&L shareholders are still holding out for a rival takeover bid due to the cut share price offered by Santander.
It is also being reported that the takeover will have a negative impact for consumers, despite the positive effects its announcement has had on the banking sector. Kevin Mountford, head of current accounts at moneysupermarket.com, said:
"While city types may be breathing a sigh of relief at the creation of a new powerhouse in UK banking, the proposed deal may not be such good news for consumers.
"Abbey and Alliance & Leicester have similar structures, making a merger desirable, but they have both been key players in driving competition. A&L, in particular has long been regarded as the 'terrier' of the financial services industry." he said, adding:
"This news also increases the likelihood of other small innovators being swallowed up by big institutions, potentially damaging competition further."
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