Santander set to win Abbey bid as HBOS drops out

Santander Central Hispano (SCH), the Spanish bank, now looks set to win its £8.55 billion (€12.5 billion) bid for Abbey National after HBOS yesterday dropped plans to mount a counterbid.

HBOS said it had decided not to proceed because it believed such a deal would fail to create value for HBOS shareholders and there was uncertainty about whether such a deal would be permitted by regulators.

Analysts said HBOS's decision made it less likely that another bidder would come forward.

Abbey shares fell 37½p to 572½p, and HBOS shares closed up 23½p to 738p. SCH's offer values each Abbey share at 580p.

SCH said it hoped to complete the deal by November 12th after it received crucial EU clearance for the deal yesterday.

"The deal raises no competition concerns since the two banks presently operate mostly in different countries," the European Commission said in a statement.

The Commission said that, when SCH notified the European Union executive of the deal, it said that it had agreed with the Royal Bank of Scotland to terminate several aspects of a 1998 alliance.

Yesterday, Mr James Crosby, chief executive of HBOS, said it would have been "negligent" for him not to look at Abbey.

"Make no bones about it, Abbey National was a one-off opportunity which we had to crawl all over," he said.

"We've been around a long time and the heart tells you to do this acquisition but, in this instance, the head tells you that you shouldn't risk it. We're paid to run the business with our heads not our hearts.

"I promised shareholders we would not overpay. Management could have ended up trying hard for a conclusion which would be fantastic to Abbey shareholders but not fantastic for ours."

He said HBOS had tried hard to make the numbers stack up and had calculated it could make far more synergies than the £770 million of savings that the market expected.

Some Abbey investors said they were disappointed but not surprised that HBOS had decided not to proceed.

Mr Edward Bonham-Carter, chief executive of Jupiter Asset Management, said: "Given the regulatory environment and where we are in the political cycle, the fact that HBOS has decided against a bid is not a shock."

Mr Richard Staite, analyst at SG Securities, said: "HBOS was in the best position to acquire Abbey and it looks highly unlikely someone else will come in at this stage."

Documents detailing the terms of the offer will be posted to Abbey National's 1.8 million investors tomorrow, and Abbey will hold its extraordinary general meeting for shareholders to approve the deal on October 14th.