New C&G plan gives members pounds 300 more: 1.8bn pounds Lloyds merger revamped

CHELTENHAM & Gloucester Building Society has revamped its pounds 1.8bn payment plan for its proposed merger with Lloyds Bank, giving C&G's members an average pounds 300 more than under the original deal. But borrowers without share accounts will now get nothing.

C&G must win the approval of its members for the deal with Lloyds, announced in April, under which Lloyds pays pounds 1.8bn cash.

The original cash distribution was rejected by the High Court in June, when a judge decided that, under the Building Societies Act, customers of less than two years' duration and mortgage borrowers could not receive cash payments.

Significantly, the judge decided that if borrowers were also savers they could receive payments. Yesterday, Andrew Longhurst, C&G's chief executive, refused to say how many of the society's 375,000 borrowers also held eligible savings accounts.

Mr Longhurst said borrowers should vote for the deal because under the merger C&G's mortgage rates were likely to come down.

Because the new plan distributes the pounds 1.8bn Lloyds is paying between fewer people, share account holders will now get an average of pounds 2,000 instead of pounds 1,700.

The plan also moves the qualifying date from which the two-year rule is measured to 31 December 1994, rather than 31 December 1993 under the original scheme. That means shareholders who joined on or before 31 December 1992 will be eligible for cash, thus cutting the number of people losing out.

C&G will pay pounds 500 to each qualifying account, instead of to each qualifying customer. That means that everyone who can legally be paid, including children and deposit account holders, will get at least pounds 500 for each account, as long as they have pounds 100 in the account on the appropriate day and keep the account open.

Children and deposit account holders did not qualify for this payment under the previous scheme.

Once the payments have been made, the rest of the pounds 1.8bn will be paid as a percentage amount depending on account balances. The percentage is now expected to be around 13 per cent per account, rather than about 10 per cent previously.

In all cases, the maximum balance used to calculate the percentage payment will be pounds 100,000 per account. So the maximum payment per account will be pounds 13,000 plus pounds 500. Originally the maximum payment was pounds 10,000 per account.

Voting forms and a transfer statement covering the deal will be sent to C&G members in late February and the votes will be cast at a special general meeting in March. Assuming all conditions are met, the merger with Lloyds would take effect next summer, roughly three months later than originally envisaged.

The hurdles are high - at least half of all eligible savers must vote and three-quarters of those voting must approve the takeover. In a separate vote the borrowers must approve the deal by a simple majority.

The fact that C&G has decided to go ahead on this basis, and not appeal against the High Court's ruling, suggests that it is confident enough borrowers are also savers, and therefore eligible for cash, and that the rest do not have an incentive to vote against.

Peter Nicholson, co-founder of C&G Alternatives, a customer pressure group, said: 'We reckon the Lloyds bid is undervalued, no other bids have been allowed and the possibility of floating C&G hasn't been considered.'

Mr Nicholson is calling for a special general meeting at which alternatives could be discussed.

(Photograph omitted)

View from City Road, page 25