February 16, 2011
By Staff Reporter
Snapping up Abbey would have catapulted Band of Ireland into the premier league of banking with a listing on London’s FTSE 100 index.
The abandoned bid has been interpreted in Dublin as a significant failure for BoI, even though its share price rose sharply when the news broke last Friday.
BoI shares gained 45 cents to close at euro 10.55.
When the bank made its move at the start of October, Abbey’s share price was in the doldrums at a seven-year low. Its management were seen as struggling and demoralized after the chief executive had quit in July because of a profits tumble and the stock price collapse — the BoI bid appeared to have legs.
But instead it became the second rebuff for Ireland’s establishment bank, in its strategy to expand in Britain using a building society-turned-bank. Three years ago it was forced to withdraw from a merger proposal with the smaller Alliance and Leicester.
One factor in the failure is believed to be BoI’s heavy-handed, aggressive approach to the potential takeover, which Abbey National rebuffed smartly.
“Bank of Ireland has made clear from the outset that its proposal for a combination with Abbey National was dependent on Abbey National’s cooperation and due diligence,” the Irish bank said in a statement. “Such cooperation hasn’t been forthcoming. Given this position, the bank won’t proceed with its proposal.”
BoI had offered $15.98 billion in its bid for Abbey, but Abbey Chairman Terence Burns continued to reject the Irish bank’s offer as “inadequate” and “opportunistic” as well as not in the interests of Abbey’s share holders.
Abbey also set about changing its ways and appointed former UBS AG President Luqman Arnold as its new chairman, a move widely seen as shoring up Abbey’s financial situation against further takeover bids.
The outcome has left analysts wondering if BoI can ever fulfill its ambition to be a financial services group, and also if it is now regarded as takeover material itself.
London bank Lloyds TSB Group PLC may be a better match with BoI than the failed Abbey takeover, analysts have suggested.
BoI’s domestic market has become mature and it has made no secret it was looking abroad to grow. It recently bought a 61 percent stake in Iridian Asset Management of the U.S. for $177 million, with an option to buy the rest.
“The reality of what’s happened here is that Bank of Ireland misjudged and misinterpreted its share rating, which was strong earlier this year because of the fact that it was seen as defensive,” said one Dublin bank analyst. “But trying to translate that onto a massive acquisition in a market that they’re not good in anyway, just didn’t work.”
The 219-year-old BoI is very much the “establishment” bank and was banker to the government until the setting up of the Central Bank in 1942. It holds its court, or board, meetings in the pre-Act of Union parliament chamber on Dame Street. It has 56,000 stockholders and 16,400 employees worldwide.
“Some people could say that Bank of Ireland chief executive, Michael Soden, has left the bank in a vulnerable position, but others might say he won the moral high ground,” said Len Riddell of Goodbody’s analysts. “You could also say that Abbey National was remiss in not having at least held talks with the bank.”
BoI CEO Soden’s position is now under threat, observers in Dublin said. His clumsy and aggressive execution of the BoI bid has been described as “like a dealer at a horse fair, hell-bent on making a deal, any deal.”
BoI said its strategy remains to “successfully grow its business, organically and by acquisition, in its selected markets.”