Concerns over Lloyds TSB takeover terms of HBOS

Oct 1 2008

Prime Minister Gordon Brown said he was confident that Lloyds TSB’s planned takeover of struggling Halifax Bank of Scotland (HBOS) would go ahead despite growing doubts in the market today.

HBOS’s shares fell 12% yesterday and have lost more than half their value in the past two weeks - raising concerns over whether the deal will have to be repriced to gain the approval of Lloyds TSB shareholders.

But in an interview with Sky News yesterday, Mr Brown said: “This merger between HBOS and Lloyds TSB is a matter of great detail. I’m confident from talking to people involved that this merger is going ahead.

“At the end of the day it is a matter for shareholders not a matter for Government and I believe that some of the issues that were raised at the beginning are being dealt with and I am pretty confident that both parties want to go ahead with this deal.”

Asked if he was prepared to bail out HBOS if the deal collapses, the Prime Minister said: “We have already dealt with this through helping the merger take place. We changed the competition law to make it possible.”

“The shareholders will eventually have to make a decision in a few days times about what is right for them, but I am confident by talking to the leading parties on this that not only do they want to go ahead with this but they are determined to do all the work that will make this possible.”

Fears over Monday night’s derailing of the 700 billion US dollar (£388bn) banking bail-out for US financial institutions also weighed on bank stocks.

Lloyds has offered 0.833 of its own shares - currently equivalent to 187p - for every HBOS share in a deal valuing the lender at £9.8 billion.

But HBOS shares were trading 33% below this at around 125p yesterday, raising questions over whether the takeover would be waved through as it currently stands.

Alex Potter, Collins Stewart banking analyst, said: “The market is implying that (the deal) does not happen.”

Numis Securities analyst Gurgit Kambo added: “There are clearly some concerns. The uncertainty is if shareholders vote against it, then it won’t go through.”

An HBOS spokesman shrugged off the concerns today. He said: “This is the right deal for HBOS shareholders. We are already working on the integration planning process and it is full steam ahead as far as we are concerned.

“Share price volatility in bank stocks is part of the menu at the moment. These are not normal times.”

Despite Monday night’s rejection, there were hopes that a bail-out could yet be agreed by US politicians. The US Senate will vote on a slightly modified version of the plan later today.

This would help restore confidence in markets stunned by the latest twists of the global banking crisis - which has seen Bradford & Bingley nationalised this week and a host of other players given state-bailouts or taken over in Europe and the US.

HBOS sought a takeover by Lloyds TSB to bring stability to the business after a run on its shares in the wake of the collapse of US investment bank Lehman Brothers, and concerns over higher funding costs in frozen inter-bank markets.

If the deal goes ahead, it will create a “mega-bank” with nearly a third of the UK mortgage market and more than £300 billion of deposits.

It will also have around 3,000 branches, leapfrogging industry titan Royal Bank of Scotland’s 2,300 sites and dwarfing HSBC, which has around half.