Barclays, the UK's fourth-largest bank, is preparing a £5.4 billion sterling (€9.02 million) friendly bid for Woolwich which could be recommended by the board of the former building society as early as tomorrow. The news sparked sharp rises in the shares of rival mortgage banks as it fuelled hopes of further consolidation.
Woolwich shares jumped 27 per cent to close at 341p, less than the value of the possible bid, while Barclays shares fell 49p to 16.15 as analysts said the price was "very full".
If the deal goes through it will establish Barclays as the number four mortgage lender and meet the ambitions of Mr Matt Barrett, chief executive, to double home loan market share.
Barclays said it would also lead to increased profits from next year thanks to "substantial" gains in revenue and cuts in costs. The Woolwich brand name and branches would be retained and more effort put into expanding the mortgage bank's "Open Plan" e-banking service.
"The incorporation of Woolwich's brand, management, products and capabilities within the Barclays group would accelerate the achievement of Barclays strategic ambitions," Barclays said.
The banks have agreed terms on price with a mixed cash and paper deal worth 356p for each Woolwich share, a 38 per cent premium to Friday's close.
Talks are continuing, and a deal is not certain. But it is understood that all the main issues have been ironed out and only minor details are under discussion, while regulatory approval is awaited. An announcement is likely tomorrow although it could be delayed until next week.
Barclays is keen to retain the Woolwich team, which is understood to be one of the key attractions of Woolwich, and John Stewart, the respected chief executive, is likely to join the board. Some institutional shareholders yesterday called for Mr Barrett to move aside rapidly to make way for Mr Stewart.
One large shareholder said the role of Mr Stewart was key to the deal. "He's the top, coming chief executive, who'll be head of a major bank one day," the fund manager said. "But how does his time proposition fit with Matt Barrett? We'd like to see him in place sooner rather than later."
A deal was welcomed by analysts as good for both banks. They said the price based on 164p for each Woolwich share, plus 0.1175 Barclays shares was high enough to deter counter-bidders.
News of the talks led to heightened expectation of a bid for other mortgage banks, with Lloyds TSB named the most likely predator.
However, one senior analyst said: "Abbey National is too big and on the boundary of being referred to the Competition Commission while the only option with Alliance & Leicester is slash and burn."
