April 25, 2001
Web posted at: 1054 GMT
LONDON (CNN) -- The Bank of Scotland and the Halifax said they are in talks about a merger that could lead to the creation of the UK's fifth-largest bank.
A merger would value the combination of Scotland's second-biggest bank and Britain's biggest mortgage lender at about £26 billion ($37.3 billion), according to Tuesday's closing share prices.
"Any transaction would be structured as a nil premium merger based on a one-for-one share exchange ratio," the banks said. "Discussions are continuing and a further announcement will be made when appropriate."
The Bank of Scotland has been under intense pressure to find a merger partner. This is its third attempt at merging with a rival after two failed bids to link up with the National Westminster Bank and Abbey National, Britain's No. 2 mortgage lender.
NatWest opted to merge with the Bank of Scotland's larger rival the Royal Bank of Scotland, and Abbey National broke off talks after strong overtures from Lloyds TSB. The U.K. government is currently considering that combination.
Jim Wood-Smith, chief analyst at investment bank Gerrard in London, told CNN that the Bank of Scotland had been interested in Halifax before it turned its attention to Abbey National.
"With Abbey out of the way it comes as no surprise that the Bank of Scotland has turned its focus to Halifax," Wood-Smith said.
"The real surprise is that the Halifax is interested in a merger," he added. "The Halifax has said it plans to diversify from the mortgage market but would steer a strong independent course."
According to The Herald, the Scottish newspaper that broke the news, Bank of Scotland Chief Executive Peter Burt would run the combined Bank of Scotland-Halifax.
Wood-Smith said Burt, 57, had run an extremely good operation for shareholders.
For its part, the Halifax under the stewardship of Chief Executive James Crosby is moving away from its traditional dependence on the lower-margin mortgage market. The Halifax has diversified towards more profitable long-term savings products.
As part of that strategy, it bought financial services firm St James's Place last year and clinched a deal to buy the assets of failed life assurer Equitable Life.
A source close to the deal, emphasized that the merger would prove an "excellent strategic fit" and provide a challenge to the U.K.'s four biggest banks – Lloyds-TSB (LLOY), Royal bank of Scotland (RBOS), Barclays (BARC) and HSBC Holdings (HSBA).
The Bank of Scotland would get access to funds to grow its corporate banking business and sell its services through the Halifax's network in England and Wales.
Halifax shares rose 7 percent to 789.75 pence and the Bank of Scotland added 7.1 percent to 795 pence in midday trade in London.
RELATED STORIES:
Halifax profit rises almost 10 percent; lender cuts home loan rates
Feb. 20, 2001
Abbey National calls off merger talks with Bank of Scotland
Feb. 28, 2001
RELATED SITES:
Bank of Scotland
HalifaxNote: Pages will open in a new browser window
External sites are not endorsed by CNN Interactive.
