Can Spanish restore Abbey value?

Lisa Buckingham|Mail13 April 2012

The chief executive of Abbey, the bank about to be acquired by Santander of Spain, was heading off for a few days of news blackout after we had breakfast at the Ritz on Friday.

'I know what you're going to write,' said Luqman Arnold, referring to the fact that Abbey National was about to reveal that he is in line for a potential windfall of £5.5 million from the deal.

'And I bet no one will mention the fact that I have spent the best part of £1.66 million actually buying shares in the company.'

Well, there we are, Luqman. I've mentioned it.

And I'm sure the £350,000 profit those shares are currently showing will no doubt be of comfort when next year he decides whether to cosy up to venture capitalists, try for another FTSE job or go and write a novel.

Now that James Crosby at HBoS has rightly decided not to risk a rival bid for Abbey, which would have sparked a lengthy competition inquiry, the £8.5 billion bid from the Spanish looks rather like a foregone conclusion.

And if shareholders vote in favour of the deal, it will be done and dusted by early November.

But while Arnold will almost certainly cash in his chips once his agreed handover period expires, the question for Abbey's shareholders - including the 1.8 million private investors still on the register after the 1987 flotation - is whether to vote in favour of the deal and whether to take Santander shares - which will be listed in London if the deal goes through - or to take advantage of the free dealing service on offer and bale out.

The first question appears to be a no-brainer. Abbey's shares have enjoyed a takeover premium for some time and would probably be back down to about £4 were Santander to walk away.

Even under Arnold's most ambitious turnround scenarios, it would almost certainly take the best part of another 18 months for results to show and for that to be reflected in the shares.

In addition, of course, while some people may have paid £13 each for their Abbey shares, most small investors got in for free, so have lost only imaginary wealth.

There is an argument for hanging on, at least for a while, even though the free dealing service for those with 2,000 or fewer shares will expire six months after the takeover is finalised.

First, soundings suggest that customers are beginning to respond to the bank's new-look proposition.

That may not yet be feeding through as hard cash, but there can be a long lead time on these things.

Second, even if Santander cannot work the miracle it seems to think possible by putting its information technology systems into Abbey, there is certainly every reason to suspect that whatever the Spanish do will be an improvement.

And, as Fred Goodwin at Royal Bank of Scotland so compellingly demonstrated with his takeover of NatWest, the benefits of an acquisition tend to feed through in the first year or so after a deal is done.

Clearly the wider economy tends to pull the strings of bank shares and there is a question over who the headhunters will manage to come up with to replace Arnold, given that the Spaniards seem determined not to put any of their most talented bankers in charge.

But it looks worth shareholders hanging on for a while in the hope that Spanish technology and

Arnold's legacy will deliver a little more of the premium that the UK's competition rules have so far deprived them of.

+++++++++++++++

HOW very fortunate for Big Food Group's chief executive, Bill Grimsey, that Baugur appears to be riding to the rescue just as another profits warning was looking to be inevitable.

A takeover bid from Iceland's premier retail group will put BFG's hapless shareholders out of their misery.

And happily for Grimsey, it will trigger an extraordinary £1.5 million windfall from the company's not-so-long-term incentive plan --plus, of course, £650,000 in salary and pension.

It is scandalous that a supposedly performance-linked payment should be made, despite BFG having been such a dog in terms of both earnings and share price.

At least the non-executives who presided over the egregious windfall for Sir Peter Davis at rival Sainsbury - Lord Levene and Keith Butler-Wheelhouse - finally walked the plank on Friday for their role in that shamefully undeserved payment. Davis will receive £2.6 million as a reward for his inglorious reign and will be paid the equivalent of £500,000 a year until next July.

Oh, and naturally he'll be getting a rather generous pension.

David Price, who is head of the remuneration committee at Big Food Group, should now be considering his future.

And shareholders should ensure that these people are never voted into such a position at a public company again.

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