Acrimonious talks were final nail in coffin of ill-fated merger

Alliance & Leicester's abrupt decision to call off merger talks with Bank of Ireland followed increasingly acrimonious negotiations over the structure of what would have been the UK's eighth-largest bank.

A&L said Bank of Ireland had progressively introduced new demands, eventually totalling seven, for changes in a structure agreed in April. "None of these in isolation was a deal-breaker, but put together it was a sign of bad faith," an A&L adviser said last night.

Bank of Ireland also made a late effort to get Mr Peter White, A&L's chief executive, dropped as chief executive of the merged group. This, in combination with other demands, led some in A&L to suspect a "creeping take-over".

One Bank of Ireland adviser last night described A&L's statement as "a more unilateral action than we were expecting" and said the UK bank's description of the breakdown misrepresented the facts.

Mr John Windeler, A&L's chairman, called Mr Howard Kilroy, Bank of Ireland's governor, to break off talks only minutes before the withdrawal was announced.

The proposed deal would have been the biggest cross-border banking merger within Europe by a British or Irish bank. Both banks would have retained their respective stock market quotations in a complex dual listing structure.

Analysts said the breakdown left both banks discredited and likely targets for take-over. "They're both extremely vulnerable," said one banker.

A&L claimed the plan, the result of an approach it originally made last December, foundered on opposition from Bank of Ireland's non-executive directors. Some of them had not seen a memorandum of understanding agreed in mid-April by the bank's governor, chief executive and deputy chief executive before the premature disclosure of talks more than a month later.

But the Irish bank's advisers said Mr White "had not gone down well with the court (board) of the Bank of Ireland".

A&L said Bank of Ireland's seven demands included those for more Irish non-executive directors and for a casting vote for the chairman, who was to have been Irish.

Bank of Ireland said it had stuck firmly to the terms announced in a brief joint statement on May 24. The only material change suggested had been for a casting vote to avoid board deadlock.

A&L said it would resume the share buyback programme it had announced in February. It was advised by J.P. Morgan, Bank of Ireland by Warburg Dillon Read.