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Spike in HBOS shares as investors get behind Lloyds deal

02 October 2008 / by Rachael Stiles
The purchase of HBOS by Lloyds TSB is looking more likely now that the failing bank's shares have gone back up by 21 per cent after major investor Standard Life Investments threw its support behind the deal.

In the City yesterday, there was much doubt over whether or not the deal would go through after HBOS shares plummeted, leaving Lloyds TSB with a bid that was 30 per cent more than the group was worth.

But help came in the form of one of HBOS' major investors when it announced that it would support the controversial rescue bid for the struggling bank, which owns Halifax, the UK's biggest mortgage lender.

Some analysts still suspect that the gap between the bid and HBOS' value could still derail the deal, which was agreed upon two weeks ago before the most recent turbulence in the markets which saw HBOS lose 13 per cent of its share value, leaving it worth just £6.4billion compared to the £9.8billion that Lloyds TSB had agreed to pay for it.

Some Lloyds shareholders are expected to voice objections to the deal, telling The Times that they bought into Lloyds because of its conservative strategy and high dividend – both of which would be put in jeopardy by the merger.

But few have voiced their concerns publicly among pressure from the Prime Minister – who helped to negotiate the original deal – ministers, regulators, and HBOS which are all pushing for the deal to go ahead on the current terms.

Standard Life reportedly said that the deal must go ahead to ensure the stability of the UK financial services sector, sources said.

Advisors to Lloyds TSB are nonetheless encouraging a sweetening of the deal, already improved by deft negotiations on Lloyds' part as it took advantage of HBOS' weak position.

A vote on the takeover will not occur for another two months, and the deal, should it go through, will not be completed until at least the end of the year.

© Fair Investment Company Ltd