Abbey rejects Lloyds bid

Abbey National has rebuffed as "inadequate" a £19.8bn takeover offer by Lloyds TSB, setting the scene for a hostile bidding war.

It is the second time Abbey National has rejected the deal - board members first considered it in December when Lloyds TSB attempted to broker a merger on friendly terms.

Although Lloyds outlined its offer in greater detail when unveiling it formally last week, Abbey said the terms of the deal "remain subject to material uncertainties".

In reply, Lloyds said it was "disappointed" that Abbey directors had rejected the "compelling" business case behind the merger.

Hostile bid

The rejection leaves Lloyds with options of either withdrawing, raising its bid in an effort to win approval from Abbey directors, or going hostile, and appealing directly to the bank's shareholders to back the takeover.

But Lloyds on Wednesday declined to reveal its hand.

"Although we are disappointed, [the Abbey's] response does not change our position," a Lloyds statement said.

The bank will continue to court Abbey shareholders, and "consider options" after hearing whether its takeover plans are cleared by trade watchdogs, the statement said.

Key meeting

Wednesday's statements followed a 90 minute meeting on Monday between directors of the two banks at the home of Peter Ellwood, Lloyds TSB's chief executive, when the bank was given "an opportunity to explain its proposal".

Peter Ellwood: hosted Lloyds/Abbey meeting

The Lloyds deal would lead to the loss of 9,000 jobs and merger of 600 branches, in a drive to achieve cost savings of £900m a year.

Lloyds TSB currently has 2,200 branches, and Abbey National 722, and a combined workforce of about 100,000 staff.

The level of the proposed cuts has prompted calls from unions for the deal to be referred for an in-depth trade investigation.

The Office of Fair Trading held a high-level meeting on Wednesday to consider the merger.

Latest reports give the deal a 50:50 chance of being referred to the Competition Commission for more rigorous examination.

Rival offer

The OFT has already approved an alternative proposal, favoured by Abbey National directors, to merge the former building society with Bank of Scotland.

BoS earlier this week said it was still in talks with Abbey over the plans.

In the City, Lloyds TSB shares closed 11.5p lower at 713.5p, while Abbey National ended 24p down at 1216p.