Barclays buys rival Woolwich

The UK's fourth-biggest High Street bank, Barclays, will take over its rival Woolwich in a £5.4bn ($8.1bn) deal.

Combined with Barclays' strengths, we can all go forward changing the nature of retail banking in the United Kingdom

Sir Brian Jenkins, Woolwich chairman

The deal will cost at least 1,000 jobs as both banks integrate their "back office infrastructure", the management of business, running of accounts and other financial dealings.

Where the two networks overlap, the new group will "co-locate" 200 bank branches, effectively closing 100 of them.

But Barclays says both the Woolwich brand name and some of its branches will be retained, with the firm set to become the mortgage arm of Barclays Group.

The offer

Woolwich chairman Sir Brian Jenkins said: "From the Woolwich we bring our popular brand, innovation and highly successful management team to join in this exciting venture."

"Combined with Barclays' strengths, we can all go forward changing the nature of retail banking in the United Kingdom."

Barclays chief executive Matthew Barrett

The boards of both banks unanimously agreed the terms of the sale, which offers Woolwich share holders a mix of Barclays shares and cash.

Under the terms of the offer, Woolwich shareholders will receive 0.1175 new Barclays shares and £1.64 for each Woolwich share.

This values Woolwich at about £5.4bn or 352p a share.

This would represent a premium of 31% on Woolwich's closing price on Tuesday of 269.25p, before the take-over talks were announced.

The Woolwich

Branches: 402

Staff: 6,500

Profit: £530.3m (1999)

Customers: 4m

Borrowers: 500,000

Woolwich's shares had surged on the news, closing 26.8% higher at 341p on the London Stock Exchange.

But Barclays' shares were down 2.9% at the close on concerns that the bank was paying too much for Woolwich.

Cutting costs

The financial success of the deal will depend on vigorous cost-cutting, and therefore redundancies.

So far, both firms estimate that 1,000 jobs will have to go.

Barclays

Branches: 1,718

Staff: 74,300

Profit: £2.46bn (1999)

Customers: 12m

Active in 60 countries

Barclays has more than 50,000 UK staff and 1,700 branches, while Woolwich has about 6,000 staff and 400 branches.

One area where both are strong is e-commerce and a merger would help them press ahead with internet business plans.

Barclays said the deal would be expected to enhance earnings by 2001 through a combination of additional revenues and cost savings.

Image boost

Barclays - which has suffered from a spate of bad publicity recently - will hope the deal will give its image a welcome boost.

In April, it apologised for the way it had handled the closure of 171 branches, many of them in rural areas.

Chairman Sir Peter Middleton told shareholders at the bank's annual general meeting that he regretted there had been no alternative service in place at the time of the closures.

In some cases, the demise of the Barclays branch left communities with no bank.

Barclays had also been at the forefront of unpopular proposals to charge non-customers for the use of cash machines.

And in March it emerged that the chief executive, Matthew Barrett, had been paid £1.3m for just three months' work, angering staff and customers alike.