BoS rejects Abbey National approach

Both firms are expected to become take-over targets

Bank of Scotland has rejected a take-over approach by The Abbey National, saying it would be 'unlikely' to benefit shareholders.

The Abbey National said on Friday a takeover of BoS would "create value" for shareholders of both banks.

But BoS said in a statement: "It seems unlikely that Abbey National's approach will lead to a satisfactory transaction for Bank of Scotland shareholders.

"But of course the board always reviews opportunities to optimise shareholder value."

Confusing strategy

The bungled courtship has sparked speculation that BoS and Abbey National are now at the mercy of potential predators such as Lloyd's, Barclay's or The Royal Bank of Scotland.

The National Bank of Australia has also been motioned by analysts as a possible bidder for Abbey National.

Abbey National said it had approached BoS last week about a possible take-over.

BoS is reported to have responded coolly, saying it had already suggested a merger with Abbey National in the summer, but that Abbey had walked away.

"This move makes Abbey's strategy look rather confusing. It looks as though they have written their own suicide note," said Keith Baird, banking analyst at Pru-Bache Securities.

Abbey National shares were up 87p at 1,056, following news of the bungled take-over bid, while Bank of Scotland climbed 17.5p at 693.5.

Megabank

A takeover would have boosted Abbey National's presence in Scotland, following the £1.8bn takeover of Scottish Provident in September.

It would also have brought together BoS's 325 mainly Scottish-based high street branches with Abbey's 800 branches, in a company with a market value of about £23bn, creating a fifth force in UK banking.

For Abbey National, a merger with Bank of Scotland would give them greater diversification away from mortgages, which has become increasingly competitive and less profitable

Banking analyst Ian Hodges

Bank of Scotland is understood to have been keen to speak to potential merger partners since losing the drawn-out battle for NatWest, which was eventually taken over by arch-rival Royal Bank of Scotland.

Banking analyst Ian Hodges, of Barclays Stockbrokers, said: "They [Abbey and BoS] are a similar size and both have attractions for one another.

"Bank of Scotland has a very small mortgage business and bringing in Abbey National will give them greater exposure to mortgages.

"For Abbey National, a merger with Bank of Scotland would give them greater diversification away from mortgages, which has become increasingly competitive and less profitable."