Shares in UK bank Alliance & Leicester (A&L) soared by more than 16 per cent yesterday on news it had held takeover talks with Santander, as the Spanish group eyes opportunities in the fallout from the credit crunch.
A source familiar with the matter, confirming media reports, said the banks had held tentative talks, but negotiations broke down in mid-December when the two sides failed to agree a price.
However, the Financial Times (FT) quoted people close to the Spanish bank as saying Santander, which already owns UK bank Abbey, had not ruled out resuming negotiations or excluded making an improved offer for the mortgage lender.
Earlier in the week, Santander chairman Emilio Botin said in an interview with the FT that the bank wanted to grow in Britain and the US and was looking for buying opportunities.
A&L shares touched a high of 769½p before closing at 754p. At that price, A&L is worth almost £3.2 billion - still almost half its 2007 peak value of £5.9 billion.
Santander closed down 1.4 per cent.
A&L, Britain's seventh-largest listed bank, was one of the worst performing UK bank stocks in 2007 - behind troubled lender Northern Rock - losing over 40 per cent of its value under pressure from investors rattled by funding fears.
Santander has in the past expressed an interest in UK deals, but analysts said any move on A&L would have to be pitched cheaply enough to offset the risks of increased exposure to the British mortgage market, already a sizeable portion of its loan book, at an uncertain time in the economic cycle.
"Alliance and Leicester would have to be a real bargain for them. It's not in line with the overall strategy of Santander in the UK," analyst Alberto Cordara at ABN Amro said.
Last year, an analysis by UBS said Bank of Ireland could also be a potential buyer for A&L.
On a price-to-earnings ratio of about eight times, analysts say, A&L is at the high end of its sector, with UK domestic banks averaging just below seven times, although that could be distorted by the wide range of 2008 forecasts for the bank. Its price-to-book ratio, however, is 1.6 times - below the sector's 1.8 times average. Analysts say the timing for a bid could be right.
"You have a business that is stable in terms of the normal business, but it is clearly weakened in terms of its funding position," analyst Mike Trippitt at Oriel Securities said. - ( Reuters )
