Bloomberg News
EDINBURGH Bank of Scotland, which failed to find a partner in two previous attempts, may combine with Halifax Group PLC, Britains largest mortgage lender, in a transaction worth at least $14 billion.
The two companies said they are discussing a one-for-one share exchange, in which neither would pay a premium. The talks are at an early stage, said Mark Hemingway, a spokesman for Halifax.
Halifaxs market value is $25.3 billion and Bank of Scotlands $14.8 billion, so Halifax investors would own 63% of the new company.
The two companies are trying to dress it up as a merger of equals, said Robert Talbut, the head of global stocks at Royal and Sun Alliance Investments, but I suspect it will be a Halifax takeover of Bank of Scotland.
Peter Burt, the chief executive officer of Bank of Scotland, failed in his attempts to buy National Westminster Bank PLC last year and to merge with Abbey National PLC in February. Mr. Burt, 57, would lead the combined company, the Glasgow Herald reported Wednesday.
James Crosby, the CEO of Halifax, has been making acquisitions to diversify its menu beyond savings accounts and mortgages, which are becoming less profitable as more banks sell home loans cheaply. In the last two years the company has bought the insurers Equitable Life Assurance Society and St. James Place Capital PLC, as well as Bank One Corp.s U.K. credit card business.
The merger would lower Halifaxs dependence on home lending and give Bank of Scotland 20 million new customers. The bank would get access to a branch network in England and Halifax would get a big leg up into the commercial banking world, said Philip Small, a fund manager at Aegon Asset Management in Edinburgh, which owns shares of the Scottish bank.
Andrew Hobson, a money manager at Exeter Investment Group, which owns shares of Bank of Scotland, said it may be vulnerable to a takeover by another banking company such as National Australia Bank Ltd., which discussed buying it last year if the Halifax talks fail.
Alexander Wright, a spokesman for National Australia, would not comment, but officials at the Melbourne-based company have said they are looking for opportunities to expand in Britain through purchases.
