Spain's Banco Santander, UK's Abbey National To Merge

Spanish banking giant Banco Santander reached an agreement today to acquire the UK's Abbey National mortgage bank in a deal valued at UK£8.5 billion to £8.9 billion (US$15.64 billion to $16.38 billion), resulting in the 10th largest bank in the world and perhaps the largest cross-border European banking deal ever.

The result reportedly would be a banking behemoth with a market capitalization of about $62 billion.

Under the terms of the acquisition, Abbey shareholders will receive one new Banco Santander share for every one Abbey share. "If the acquisition had become effective today, existing Banco Santander shareholders would own approximately 76.4 percent of the issued share capital of Banco Santander as enlarged by the acquisition and existing Abbey shareholders approximately 23.6 percent," according to a statement issued by Abbey.

Major Latin American Presence

Banco Santander, which is a group of banking and financial companies based in Madrid, is Spain's largest bank and has a major presence in Latin America. Its shares are listed on the Bolsas de Valores in Spain, and on the Lisbon, Milan, Buenos Aires and New York stock exchanges, with a market capitalization of approximately €44.8 billion (US$54.376 billion) at December 31, 2003.

Abbey is Britain's second-largest mortage lender and specializes in loans in England and Northern Ireland.

Banco Santander Chairman Emilio Botin said in the statement issued by Abbey: "Abbey's leading position in the UK mortgage market, combined with its strong distribution network, represents for Banco Santander and Abbey shareholders a value-creating opportunity based on the application of Banco Santander's commercial and technological best practices to Abbey's banking operations. Abbey's business will contribute to reinforce our pan-European franchise and provides the Group with a more balanced stream of earnings."

Key Resources, Know-How

Luqman Arnold, chief executive of Abbey, said: "Banco Santander's outstanding retail financial services skills -- both marketing and operational -- will provide key resources and know-how to accelerate implementation of Abbey's personal financial services strategy whilst simultaneously reducing execution risk. Our shared commitment to consumers will bring undoubted benefits to our customers and shareholders. Banco Santander's proven ability to operate successfully in a diverse range of countries and cultures bodes well for the success of the combination."

The actual stock trade is expected to be completed by the end of the year. The deal is contingent upon approval by shareholders and various regulatory clearances.

Prior to that transaction, "Abbey will declare a special dividend of 25 pence [US 45.9 cents] plus 6 pence [US11.0 cents] for a dividend differential, totalling 31 pence [US57.0 cents] in cash per Abbey share to Abbey shareholders on the register three business days prior to the effective date," according to the statement from Abbey.

The Abbey statement explained that "Based on the closing price of a Banco Santander share on 22 July 2004, the terms of the acquisition (taking into account the special dividend) represent a premium for Abbey shareholders of approximately 17.3 percent."

The acquisition will be governed by English law and will be subject to the applicable rules and regulations of the UK Listing Authority, the London Stock Exchange and the City Code, according to the Abbey statement. It noted that the merger also "will be subject to the applicable requirements of Spanish law and regulation."

Moving On

With the conclusion of the deal, Abbey National Chief Operating Officer Stephen Hester, who was brought in as finance director in 2002 to turn the bank around, will be stepping down, another statement issued by Abbey said. He will take a position as chief executive of The British Land Company. The date of his departure is yet to be determined.

Luqman Arnold, Abbey's chief executive, said: "Stephen has been important in the restructuring of Abbey, particularly in resolving many of the serious risks we faced in our life businesses, wholesale bank, and in regulatory compliance. The sheer scale and complexity of this task have been vast, and I am immensely fortunate that Stephen was here to take it on."

Hester said: "The last two years at Abbey have given me a fascinating opportunity to help the company through its major restructuring. The key tasks I was charged with are done, so it is a natural time for me to take on something new. I know British Land well and I am excited to be joining the company."