Mergers Of Abbey National And Santander Finance Essay

fusions Of Abbey topic And Santander Finance EssayAs Watson Head (2007 310-311) explained the terms Merger and science ar used interchangeably besides the differences are quite noniceable. The term Merger suggests the friendly reorganisations of assets into a spick-and-spanly organization the cardinal similar sur introduced organizations will and so become ane entity with both sets of existing addressholders. On the other hand, learning or a Takeover suggests obtaining unrivalleds comp whatsoevers ordinary allocate capital by another one. In an science the one of the organizations is broadr in size and monetary stability and has the dominant power over the other one. The skill process is lengthy and very complicated in record. attainment of any limited organization can have several motives, the acquirer whitethorn want to amplify their economies of scale, trade share or to attain the financial synergy by declining the fraternitys cost of capital. All thes e can be assort asHorizontal Merger and Acquisition Involves companies at the same stop of employment in the same industry. i.e. the learnedness of Cadbury by Kraft in 2010Vertical Merger and Acquisition This involves companies at different stage of production but in spite of appearance the same industry. The vertical integration can each beForward impetus towards the production process, i.e A furniture appointr merging with a retail furniture tabulet.Backward movement towards securing the suppliers, i.e A furniture manufacturer merging with a wood supplier.Conglomerate Merger and Acquisition involves companies in unrelated vexation lines. i.e. A clothing family acquiring a jewellery company. course of instructions in MA activity 2004 to 2010 in atomic number 63 sticking IndustryFigure 1 One in cardinalr companies plans to go for large scale Acquisition in 2010 some industries blotulate to be even to a greater extent active. theme USB and BCG CEO/Senior concern M A survey- 2009 on 166 European Companies.As from the Figure1 and represent1 , The MA turn out in Retail and Insurance industries are in inclining nature, but we can observe an inclining style in the commiting industry MA in Western Europe compared to the planetary trend. The Western Europe Banking sector MA shows a parallel movement with the global MA trend, suggesting that the Western mart is very susceptible to the boilers suit market movement. The inclining nature of the MA in the Western bake Sector (from middle 2005- mid 2009) suggests the upturn of the MA trend in the during the original recession crisis, the shores were making profits with the global trends in M&A as these confides are withal earning fees from their advisory and other services, such as syndicated banking facilities to support leveraged bids. The trend also suggests the wave of cross-border MA with the movement of the global trend in order to expand the art.Graph 1 Trend in Global MA activity (20 04-2010), compared to eastern hemisphereern and Western Europe banking industry MA. Source BloombergIn the current recession historic period with execrable interest rate, poor bond yields and high level of liquidity- the banking industry within the Western Europe is embracing the MA opportunity as some(prenominal) another(prenominal) corporations have pushed plump for the bidding deals.1 tabularise 1 MA trend from 1/01/2010 to 29/03/2010. Source BloombergAcquirer constituentTarget RegionAverage Size (GBP one one million million million)GlobalGlobal110.63MGlobal labor union the States174.94MGlobalEurope79.60MGlobalAsia peaceable65.29MGlobalLatin the States Caribbean331.65MGlobal spunk eastward Africa106.65MNorth the StatesNorth the States159.79MNorth the StatesEurope114.29MNorth the StatesAsia peace-loving48.36MNorth AmericaLatin America Caribbean47.84MNorth AmericaMiddle East Africa17.54MEuropeNorth America546.90MEuropeEurope65.42MEuropeAsia Pacific636.53MEuropeLatin America Caribbean1.14BEuropeMiddle East Africa95.87MAsia PacificNorth America128.86MAsia PacificEurope41.68MAsia PacificAsia Pacific46.56MAsia PacificLatin America Caribbean180.35MAsia PacificMiddle East Africa94.18MLatin America CaribbeanNorth America183.26MLatin America CaribbeanEurope455.35MLatin America CaribbeanAsia Pacific73.86MLatin America CaribbeanLatin America Caribbean506.03MLatin America CaribbeanMiddle East Africa11.21MMiddle East AfricaNorth America10.50MMiddle East AfricaEurope485.98MMiddle East AfricaAsia Pacific21.17MMiddle East AfricaLatin America Caribbean7.62MMiddle East AfricaMiddle East Africa134.77MFrom the duck above, the MA trend is inclining more towards emerging markets as the cigaret regions although, emerging markets are also opting for MA activities in the same or different emerging markets to expand the business.An Acquisition CASE Abbey national PLC acquired by Banco Santander SABackground of Abbey field of study PLCThe Abbey Nat ional Building social club was formed following the merger of the Abbey Road Building Society and the National Building Society in 19442. In July 1989, Abbey became a public limited company and floated on the capital of the United Kingdom Stock Exchange. With 12 million customers and assets of 177 gazillion, it is ranked the sixth largest bank in the UK by assets and the fifth largest by deposits (with a 9% share of the market). Reflecting its origins as a building society, it is the second largest mortgage supplier in the UK, with an 11% share of the market. Furthermore, with 15% of the market, at the time of learning, it was the third largest provider of insurance protection products and has a large distribution network with more than 700 branches (EMCC, 2008). Abbey had two main business divisions, Personal Financial Services and the Portfolio telephone circuit Unit.Background of Banco Santander Central Hispano SASantander is a bank that has transformed itself from being a middle player in the Spanish banking market 20 social classs ago, it is now a major global bank operating in Spain, Portugal, Ger many a(prenominal), the United Kingdom and other European countries, as well as in Latin America. The group is currently the leading consumer bank in Europe and has over 10,500 branches globally (excluding those branches pull togethered through the acquisition of Banco Real as a result of a deal with ABN AMRO). Santander is a technologically advanced bank, with an information technology platform that is regarded as a strong hawkish advantage. Excluding Banco Real employees, the group currently employs most 130,000 people worldwide, of whom 50% are working in Latin America. There are also large numbers of employees working in the UK and Spain. (EMCC, 2008).Banco Santander was a small retail bank when it started its business in 1985, since then it initiated its local market harvesting through mergers and strategic alliances and later utilize Low-sc ale cross-border expansion through strategic alliances and acquisitions. Gradually, the murder of Large-scale cross border expansion took place.Chart 1 Banco Santander Acquisition Transaction Overview till January 2010. Source ReutersOverview of the AcquisitionThe objectivity of this particular acquisition/takeover was to diversify the business of Banco Santander PLC to mortgage and financial services not to mention to explore the retail banking opportunities in the UK market. Therefore, the motive for this MA was to gain economies of scale through synergy and also to entering a new market in order to optimize their market share, hence purchase Abbey was a mean to enter into Europes second largest consumer financing market. In 2003 Abbey National PLC was pricey for Santander and in 2004, Abbey incurred losses from its entry into the money market and Santander distinct to go ahead with the Acquisition plan in order to cut across the UK market.Moreover, the secondary objective of this acquisition was to under(a)-cut the local competition for Banco Santander with the hopes of obtaining higher advantageousness in the UK market. Moreover, Banco Santander already had the expertise in the retail banking and built a strategic alliance with the Royal Bank of Scotland from 1988. Therefore, Santander had already gathered banking noesis and futuristic opportunities. As stated by Parada et al., (2009 666-667) Acquiring Abbey National PLC would make Banco Santander the biggest bank in Europe and Latin America and dominating their business in the strong currencies- the Euro, US dollar and the Pound. The acquisition had boosted the companys operation in six segments Retail Banking, Global Banking Markets, Corporate Banking, Private Banking, Group cornerstone and Sold Life Businesses. After the acquisition Abbey National PLC became Santander UK PLC in January 2010.3Abbeys leaders position in the United Kingdoms mortgage lending market, together with its enormous bran ch network, represent for the shareholders of Banco Santander and of Abbey an opportunity to create value based on the application of the best business and technological practices of Banco Santander to Abbeys banking operations. Abbeys business heavily contributes to beef up our pan-European franchise and provides the Group with a more balanced earnings stream.-(Emilio Botn, lead of Banco Santander, July 2004).4Table 2 Overview of the Abbey National PLC acquisition. Source ReutersAs noted in Parada et al., (2009, 666-668) in 2004 Abbey was suffering from losses from entering in the whole-sale money market therefore, Santander grabbed the opportunity to launch a friendly bid. Santander managed to overpower all the restrictive obstacles. Although the acquisition was initiated in 2004 but the tentative completion of this acquisition is expect to be at the end of 2010 abandoned Abbey National PLC will be renamed as Santander UK PLC.Figure 2 The 3 steps of internationalization imple mented by Santander in 2004. Source Authors.Acquisition of Abbey National PLCGraph 2 The dimensions of Santander acquisition with its growth (2000 to 2004). Source BloombergThe graph above portrays the emergent nature of Santander Share price after(prenominal) the Abbey acquisition at the end of year 2004.Defence Strategy implemented by Abbey National PLCDuring the Acquisition offer, Abbey National PLC urged its rivals British banks to make counter-bid offer in order to push back the 8.9 billion offer made by Banco Santander. Moreover Abbey spent out 9 million value of Legal documentation to its approximately 1.8 million shareholders in the hopes of bouncing off the Acquisition offer made by Banco Santander.5Valuation of the AcquisitionThe asking price for the acquisition was 10 billion and the sold price was 8.9 billion. The terms of the Acquisition were based on the fair play market capitalisation of the two companies over the deuce-ace months prior to 23 July 2004. Based on the average decision market price for a Banco Santander Share on the Spanish stock market was 8.70 and the average closing mid-market price for an Abbey Share on the London Stock Exchange was 4.69 at an exchange rate of 1.5054 1, the terms of the represent a premium of approximately 28.4 % with a value of each Abbey Share at 6.03 or 603 pence ( fetching into account the 6 pence for dividend differential, see the financing section), and the entire issued ordinary share capital of Abbey at approximately 8.9 billion.6Financing the Acquisition BidThe acquisition was finance through the purchase of Abbey shares and Mixed Bid offer was ab initio offered to precede the acquisition where, Santander (the largest bank in North American and Spain) offered one of its own shares and 31 pence in cash for each share of London-based Abbey shareholders.7The specific dividend of 25 pence will be paid along with 6 pence (31 pence in total) worth dividend differential to compensate the Abbey Nation al shareholders as historically the dividend retribution of Banco Santander was usually lower than Abbey National Dividend payment (Table3). Later on, in November 2004, the acquisition was carried out through an exchange of one new Santander Share for each of Abbey share.94.6% backing support (based on the share counting save 64.8 % shareholders concur to the acquisition deal) was received from the Abbeys shareholders in order to proceed with the takeover. The deal was worth almost 9 billion (or 13.5 billion to be exact at the time of acquisition offer the exchange rate was 1.5054 to 1). The enlarged company would be 76%-owned by existing Santander shareholders, with the rest in the work force of Abbey shareholders.8Regulatory FrameworkThe acquisition took place under section 425 of UK Companies crook 1985. Moreover, Santander had to provide many paper-works and detailed plans to the European Authorities regarding the Abbey Acquisition (See Appendix, representative 2). As a re sult of the acquisition, Abbeys remaining private shareholders became entitled to one Santander share and the shares are traded in Euros in the Madrid Stock Exchange.9Table 3 Capital Value estimated for the Abbey Shareholders, Source http//www.vernimmen.com/ftp/sch-abbey.pdfCultural DifferencesAlthough, the Spanish culture and British culture vary in many ship canal they run business. In British Culture, organizations rely mainly on their world Resource, whereas, Spanish Culture relies more on the technological upgrading. Abbey National PLC had almost 33% back-office employees whereas, Santander had nearly 6% to 10% employees as back-end personnel. Therefore, after the acquisition the employee number in Santander PLC came down to 16 thousands from 24 thousands in the UK. At the time of acquisition Santanders cost to income was 42%, whereas in UK it was on about 50% or more.10The acquisition may be affected by different tax incentives and regulations. Any change in the Spanish Ban king policy will affect the Santander UK subsidiary both economically and financially. Moreover at the time of acquisition in 2004, the UK national savings rate is only 14.7% of GDP, compared with over 23% in Spain. Therefore, the spending and saving nature in the UK are very diverse than in Spain.As quoted in the protector (2005) Santander .. treats its Spanish shareholders to an unusually attractive range of perks, from discounted medical insurance and dental care to cut-price hams and crates of wine.11. Therefore, such treatments in the UK can be comprehend as manipulative technique due to the variance in these two cultures.Performance in Share Price and Stock Market- Post AcquisitionSince Banco Santander is a Spanish bank, the shares was listed in Spanish Stock Market and the shareholders had to face exchange rate volatility since the dividend were being paid in Euros nonetheless, the Spanish taxation issue can be quite complicated to the UK shareholders. The Abbey sharehol ders were given the option to sell the shares to any Spanish Organization in the UK, but Abbey shareholders who held on to their Santander shares over time have to pay tax on any dividends they get.12Banco Santander new shares after the acquisition were not admitted to the Official listen or to trading on the London Stock Exchange during the post period of the acquisition.13In 2009 Santander 1.1 million new current accounts with our 25 million customers, and reported to deliver more than 30% profit in five successive years after the acquisition.Chart 2 The Overview of UK Competitors. Source H1 09 Reports selective information and BBA Abstract by HSBCGraph 3 Santander UK PLC share price performance. Sourcehttp//www.h-l.co.uk/shares/shares-search-results/s/santander-uk-plc10-38-non-cum-stlg-pre/chartsThe Santander UK PLC is in the second place after Lloyds Banking Group in the Mortgage market share in UK with relatively reasonable Market share in Retail Banking (Chart 2). Moreover, T he EPS of Banco Santander has been performing quite poorly after 2005, it has declined from 0.337 in 2005 to 0.27 in 2009 (See Appendix, Illustration 3 ).The share price of Santander UK PLC has been rising from the year 2005 (Graph 3), partly because the dividend was 15% higher than that paid in the mid of the year 2005. As of in 2006, 25% higher dividend was paid. In 2008, Banco Santander proclaimed its balance to take over bail Leicester PLC (AL). Under the terms of the agreement Banco Santander will offer one Company share for every three AL shares. The European Commission had approved Banco Santander 1.3 billion takeover of Alliance Leicester Plc. Moreover, in year 2008, Banco Santander had hold to buy Bradford Bingley PLC retail deposits and branch network. Santander had agreed to pay about 400 million to acquire 2.7 million Bradford Bingley customer savings accounts containing some 21 billion of deposits. Therefore, Santander UK PLC is still at its growth stage in the UK Market and it is focusing more on acquiring local financial institutions.Reuters reported in October 2009 that, Banco Santander SA planes to maintain its policy of compensable half its net profit in dividends in 2010. Moreover, according to the hayseed Finance (April, 2010), Banco Santander SA has higher Dividend yield of 6.80 % and global Foreign Money total Banks Industry has the rate at 1.96%, which suggest a favourable investment option to the potential shareholders. The Santander Group is working towards the policy of maximizing shareholders profit.Moreover, as reported in Bloomberg, Banco Santander SA is seeking to list its UK business in London Stock Exchange listing from February 2010 in order to raise bills for possible future buy-up opportunities, the listing offering may value at more than 15 billion. Banco Santander is looking for funds to bid for Royal Bank of Scotland PLC network of 300 branches.On the other hand, Santander UK is willing to sell 25% of its stak e in order to be listed in FTSE 100 and also to pay out about 1 billion a year in dividends to construe an attractive deal to the investors (Source The Times).ConclusionAlthough, there were many speculation against the Abbey acquisition due to its cross-border nature, but all the speculations were proven wrong. Although, this particular acquisition was the most talked about topic in the UK financial market, and many believed the acquisition would not create any value for the Abbey Shareholders. With proper taking into custody of the local market, Banco Santander had utilized its previous acquisition knowledge when it came to this acquisition. Banco Santander knows what its UK shareholders want and severe to live up that expectation to serve their UK shareholders. Banco Santander is seeking to expand its business in the UK. Although, till date the Abbey bank transformation is still under progress, but Banco Santander had been patient with the UK market because they know- slow and s teady wins the race.BibliographyHuws, U. OKeefe, B. 2008. Managing Change in EU Cross-Border Acquisition, Case example Santander and Abbey Expansion Enabling access to new markets. EMCC Company Network, 1-4.Mayer-Sommer, A. P. , Sweeney, S. Walker, D.A. 2005. Effect of Bank Acquisition on Shareholder Returns. 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