British bank Lloyds TSB on Thursday agreed to buy rival HBOS for £12.2 billion (US$21.8 billion) as the raging global financial storm claimed another victim.
The share price of HBOS rocketed 50.9 percent to 222 pence in reaction to the takeover bid, pitched at 232 pence per share and aimed at creating Britain’s third-largest bank behind Royal Bank of Scotland and HSBC in first place.
“Lloyds TSB and HBOS announce that they have reached agreement on the terms of a recommended acquisition by Lloyds TSB of HBOS,” the pair said in a statement.
Analysts estimate that up to 40,000 jobs could be lost from the banks’ combined 145,000 staff following the deal and that hundreds of branches could close. HBOS has 1,100 on Britain’s high streets and Lloyds TSB 1,900.
British Business Secretary John Hutton is effectively extending Britain’s Enterprise Act to ensure that the deal goes through “on public interest grounds,” his department said in a statement shortly after the deal.
The landmark all-share merger, effectively a rescue plan for Britain’s biggest mortgage lender, comes after HBOS shares plummeted in recent trading following days of global stock market chaos and economic gloom.
Lloyds TSB shareholders would own 56 percent of the issued share capital under the acquisition and existing HBOS shareholders 44 percent.
HBOS, or Halifax Bank of Scotland, is the latest global bank to fall foul of the ongoing credit crunch following the collapse of US group Lehman Brothers, the sale of Merill Lynch and the rescue of insurer AIG earlier this week.
“This is the right transaction for HBOS and its shareholders,” HBOS chairman Dennis Stevenson said in the release.
“Against the backdrop of the very high levels of volatility our industry is experiencing, the combined group will be one of the strongest players in the UK financial services sector,” he said.
Analysts and regulators expressed hope that the rescue takeover deal would draw a line under persistent questions about the funding of HBOS that have dogged its share price.
The value of shares in HBOS — created by the merger of Bank of Scotland and Halifax in 2001 — had slumped 55 percent so far this week.
Many market watchers had feared that HBOS could have faced the same fate as Northern Rock — which was nationalized earlier this year after experiencing severe funding problems and a run on its branches late last year.
HBOS and Lloyds TSB together hold nearly a third of Britain’s savings and mortgage market, but competition watchdogs will not block the deal, which was expected to be completed toward the end of the year or early next year.
The deal was described by regulator the Financial Services Authority as “a welcome move as it is likely to enhance stability within financial markets and improve confidence among customers and investors.”
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