Abbey National was last night close to backing an £8.5 billion (€12.9 billion) takeover bid from Santander Central Hispano, Spain's biggest bank. It would be Europe's largest cross-border deal in retail banking.
The board of the UK's sixth-largest bank - which last year rebuffed a takeover offer from Bank of Ireland valued at €16 billion - was locked in talks last night discussing the details of the offer, understood to be worth 550p-580p in a mix of cash and shares. An announcement is expected as early as today.
Final details were still being hammered out, including arrangements for Abbey's 1.7 million retail shareholders, many of whom are thought unlikely to want to hold on to shares in a Spanish bank.
The bank could provide ways to make it easier for these investors to sell their shares. There has been concern that this could create a flowback problem for Santander on the Spanish market.
The Spanish bank is understood to be planning a large capital increase to pay for the acquisition. It could generate £500 million of synergies from the deal, according to analysts.
Shares in Abbey rose 87p to 580p on Friday, valuing the bank at £8.56 billion.
If Abbey, which made losses of £686 million in 2003, accepts the offer, it would be the biggest acquisition attempted by the Spanish bank and would create the world's eighth-largest bank.
There have been few cross- border European deals in banking. The differences between markets make it hard to make the cost savings that would justify paying a control premium for a rival.
The trigger for the formal approach from Santander is understood to have been Abbey's announcement last week that it would not have to inject fresh capital into its life assurance business under new regulatory rules. Uncertainty about the struggling life operations had been seen by many analysts as a potential poison pill.
Mr Emilio Botin, Santander's chairman, told shareholders last year he wanted to transform Santander into one of the top 10 banks in the world by market capitalisation. The bank, with a market capitalisation of €38.4 billion, would be absorbing a bank three-quarters its size in terms of assets.
Abbey - which is 18 months into a three-year turnaround programme under chief executive Mr Luqman Arnold - has been criticised in the past for refusing to discuss bid approaches.
Mr Arnold, chief operating officer Mr Stephen Hester and chairman Lord Burns are unlikely to take positions in the new group.
Although Abbey's management is thought to be confident of turning the retail bank around, it is mindful that investors would want a chance to consider an offer.
