Dow Jones

LONDON — British bank Abbey National PLC on Wednesday for the second time rejected a takeover approach by its larger rival Lloyds TSB Group PLC, increasing the chances that Lloyds may now make a hostile bid.

“We’re disappointed that Abbey’s board hasn’t recognized the merits of our business case, which we believe is very compelling,” a Lloyds TSB spokeswoman said after Abbey issued a statement rejecting Lloyds’ $28 billion offer.

“Their response doesn’t change our position, and we will continue to present our case to shareholders over the coming days,” the spokeswoman said.

Sources said Lloyds is not ruling out a hostile bid but that everything now hinges on whether British antitrust authorities give its bid a green light or whether they decide it must be subject to a lengthy investigation. That decision is due Feb. 23. Analysts’ opinions vary on whether the deal will run into regulatory problems.

Lloyds made its first approach before Christmas, but Abbey rejected the overture, saying that Lloyds’ terms were too low, that predicted synergies were dubious, and that there was a high risk of its being rejected by regulators.

Top executives at Abbey agreed to meet Lloyds executives to discuss the proposal in more detail this week, but Lloyds did not improve its offer, so it was widely expected that the smaller bank would again reject the offer. Indeed, in a statement issued Wednesday, mortgages-focused Abbey said it was still of the opinion that the terms remain inadequate and the deal is “subject to material uncertainties.”

But sources in the Lloyds’ camp said the larger bank considered it a full offer and that all Abbey’s concerns had been addressed. “I think we’ve answered all their issues to be quite honest,” one said.

Lloyds made its offer conditional on a recommendation by Abbey’s board and a green light from regulators. But Lloyds has said it would not necessarily walk away if either condition remained unfulfilled. “We are very serious about this ... We’re prepared for any kind of scenario,” the source said.

Lloyds has tabled meetings with Abbey’s major shareholders this week to present the merits of its case to them, in the hope they would press the Abbey board to support Lloyds’ bid.

Abbey has preferred to work on a nil-premium merger proposal with Bank of Scotland PLC.

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