N&P faces £1.1bn Abbey bid

BY JOHN WILLCOCK

Financial Correspondent

Abbey National is set to offer £1.1bn to buy National & Provincial Building Society later this week. The sealed bid, which could mean average payments to N&P members of about £650 each, is thought likely to face strongest competition from the Alliance & Leicester, which is considering a merger with N&P and then conversion to bank status.

Abbey has consistently refused to comment on its unsolicited approach to the N&P, which it first made public last month.

Peter Birch, chief executive, said Abbey was prepared to pay "a significant premium to net asset value" to N&P's members in order to buy the society.

Yesterday, Abbey, given a deadline of Friday this week to come up with a firm offer, said: "We can't comment on speculation about figures because we are bound by a confidentiality agreement with N&P."

However, City analysts expect Abbey to offer roughly 1.5 times N&P's net asset value. N&P's current net assets stand at £732m, giving rise to an offer of roughly £1.1bn.

Mr Birch has already said he would not anticipate paying as high a multiple as Lloyds Bank did for Cheltenham & Gloucester. Lloyds' £1.8 bn offer for C&G was worth 1.8 times its net asset value, but C&G is a niche provider of mortgages with a relatively small number of branches and has lower overheads than most societies.

Abbey has run into difficulties with its approach to N&P because the building society movement has perceived it as the first ever hostile takeover bid for a mutual society.

Abbey has stressed that there is nothing hostile about the approach but has felt inhibited from talking publicly about details because of the confidentiality agreement.

City analysts point out that following the cash payout offered by the Lloyds/C&G bid, N&P members may be only interested in the £650 they would, on average, be expected to receive under the Abbey's likely offer.

Following the recent spate of interest shown by banks in buying building societies, the societies themselves have reacted defensively.

They would, in the main, prefer to merge with each other and then convert to bank status, making sure the new unit would be large enough to repel any hostile takeover bids as a PLC.

But any attempt by N&P to rebuff Abbey and go for a merger with a society like Alliance & Leicester would run into a time problem. The Halifax/Leeds tie- up is not expected to deliver its share pay-off to members until three years after the original deal was proposed.

Analysts point out that N&P would face an uphill struggle convincing its members to expect jam tomorrow instead of jam today. Abbey hopes the N&P board will give its firm reaction to the approach by the end of June, in which case it could have the deal completed within a year.

A number of other suitors have emerged for N&P. European banks have been mentioned, although if they offered cash under building society legislation, they would not be able to make cash payments to N&P's borrowers.

They would also face difficulties in providing shares to N&P's members.

Other contenders have included the Woolwich, the Nationwide and National Australia Bank, which owns Yorkshire Bank.

National Australia Bank has said it is definitely interested in buying a society in order to increase its distribution in the UK, but it has not decided which society definitely to go for. Other rumours currently doing the rounds include talks between the Woolwich and Bradford & Bingley.

The Building Societies Association annual conference which starts in Birmingham this Tuesday is expected to be buzzing with similar rumours.

One analyst has likened it to "a gigantic dating agency", although a BSA spokeswoman denies this is an accurate portrayal of the event.

The BSA points out that people have far better opportunities to conduct confidential negotiations elsewhere, although this dating agency image had become a part of the conference myth.

The conference itself is likely to see stiff criticism of the Government by society chiefs over its lack of support for the housing market and home ownership in general.

Anthony Nelson, Minister of State at the Treasury, will be addressing the conference as well as Alistair Darling, Labour's spokesman for City and Financial Affairs.

Society chiefs are particularly disappointed by tax changes which make it more difficult for the newly unemployed to get help with their mortgage payments and are interested in what Labour has to say.