The Santander / Abbey Deal: Reactions

i. Competitors

The BSCH – Abbey operation was the largest cross-border deal in the history of European retail banking. Until then, domestic M&As had predominated in the European banking scene and mega-banks like BSCH and BBVA in Spain, BNP Paribas in France or RBOS in the UK had emerged.

It is therefore interesting to examine what the reaction of other European banks upon the announcement of the deal was. Abbey had been for a long time an interesting acquisition target for other European banks. Bank of Ireland approached it in 2002 to propose a merger, but the offer was rejected. In 2003 rumors about Royal Bank of Scotland, and BNP Paribas being interested in Abbey National were voiced. However, none of these approaches fructified due to, either the rejection by Abbey National or the block by competition authorities.

Upon announcement of BSCH’s friendly bid on Abbey National,  the news talked about a possible counter-bid by HBOS plc. HBOS finally withdrew from its rival bid plans , probably due to its fear of it being down-turned by UK competition authorities, as happened with Lloids TSB bid for Abbey in 2001. Santander announced that it intended to counter any rival bid.

ii. Shareholders

Banco Santander Central Hispano offered one BSCH share plus 31 pence in cash for each Abbey share. This equates to a firm valuation at about £8bn or €15.6bn, or 559p a share, based on BSCH’s share price on the day before the deal was announced and 66p up from Abbey’s price of 493p on the day before the deal was announced.

An important issue for Abbey’s 1.8 million private shareholders was the prospect of owning shares in a Spanish bank quoted on the Madrid Stock Exchange. In response to these concerns, BSCH announced that, following the merger, Abbey shareholders would be able to get their dividend payments in sterlings, rather than euros, every three months and that BSCH would seek a secondary listing in London, so that the value of its shares will also be quoted in sterling. As a result, only 10% of Abbey's shareholders divested their shares, giving Santander a much broader investor base than before.

iii. Regulators

Santander’s friendly bid on Abbey is a cross-border operation which required approval by Spanish regulatory bodies – CNMV, equivalent to the American SEC, and the Bank of Spain –UK courts and the UK's Financial Services Authority. In addition, since the operation has community dimension , it requires the approval by the European Commission. The European Commission authorized the transaction after its competitive assessment based on the inexistence of overlaps between both companies’ activities. The European Commission put a lot of emphasis on the past cooperation between Royal Bank of Scotland and Banco Santander which entered into a Strategic Cooperation Agreement in 1988. Upon announcement of the BSCH-Abbey deal, RBS and Banco Santander agreed to terminate their commercial cooperation and the representation on each others Board of Directors. The only link remaining between both was a limited cross-shareholding.

:: The Santander / Abbey deal :: I. Background: History | Santander | Abbey | reactions; II. Acquisition objectives | synergies | complexities; III. Integration strategy | assessment; IV. The deal: evaluation | bibliography | index