Maybe not such the positive, forward-looking, banking deal the beleagured UK market has bought in to.
All the expected detail is there in the Santander statement: A&L shares valued at 299p each; one Santander share for every three; a premium of 36.5 per cent; significant synergies for Santander:
The Acquisition allows the combination of A&L and Abbey’s complementary business operations, enhancing the competitive positioning of the products and services offered by the group, benefiting customers. The combined group should also benefit from increased efficiency and should, over time, enable A&L’s cost of funding to be reduced from the current high levels.
For Santander, the acquisition will deliver increased critical mass in the UK market.
But here’s the sting:
To address potential liquidity risks, Santander intends to reduce the assets of the combined A&L and Abbey by between £20 billion and £30 billion over the course of two years. This will include running down the treasury portfolio over time. In estimating the financial benefits of the Acquisition, Santander has taken into account an estimated impact on profitability of such deleveraging.
Although over a longer time frame, selling so many assets – into a contained and falling UK market – will not be pleasant. Santander has clearly prioritised the need for quick sales over concerns about booking losses too – so no waiting around for the “right price” for that SIV paper or CDO bond.
Update: Sting 2
Against this background and in current market conditions, Santander believes that it is consistent with its existing policies to assume that it will need to provide additional capital of £1 billion to A&L.
Related links
Alliance & Leicester? It’s Santander – FT Alphaville
A&L surges on Santander offer – FT