Abbey National ended its merger talks with Bank of Scotland yesterday, clearing the way for Lloyds TSB to continue its fight for the UK's second-largest mortgage bank.
The move followed the British government's decision on Friday to refer Lloyds TSB's unsolicited £17.9 billion sterling (#2.8 billion) bid for Abbey to Britain's Competition Commission for an investigation that will take until June or July.
If Lloyds gets the green light to bid, Abbey looks set to be a sitting target unless it mounts a defence sufficient to sway its shareholders in the time available.
The proposed nil-premium merger of Abbey and Bank of Scotland, floated in November last year, had been in doubt since Lloyds began stalking Abbey.
An Abbey spokesman said it had decided to end the talks because of uncertainty created by the Competition Commmission inquiry. "The process will take four or five months, and given that we are not able to conclude a deal with Bank of Scotland during that period, we felt it was better to terminate these talks now and concentrate on growing our business."
The three-way tussle has marked a new wave of mergers in Britain's over-banked financial services market, where shrinking margins are forcing banks to get together to drive growth.
Bank of Scotland said it was disappointed by Abbey's move. It is seen as vulnerable after losing out to Royal Bank of Scotland in a takeover battle for NatWest last year, and has already been linked to potential suitors, including National Australia Bank.
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