Lloyds TSB / HBOS merger up for renegotiation

by Gill Montia

Story link: Lloyds TSB / HBOS merger up for renegotiation

The news that the Government will be taking a major stake in HBOS means that the terms of the group’s proposed merger with Lloyds TSB will be renegotiated.

The original deal was based on the value of HBOS and Lloyds TSB shares back in mid-September.

Last week, bank stock plummeted in value, so that by Friday Lloyds’ stock had lost £15.3 billion and HBOS’s £20.7 billion.

Under the terms of the original takeover deal, Lloyds offered 0.83 of its shares for each HBOS share.

This gave existing Lloyds TSB shareholders approximately 56% of the new enlarged bank and existing HBOS shareholders, around 44%.

However, HBOS’s value has since fallen by almost a half, meaning Lloyds’ shareholders will be losing out if the takeover goes ahead on these terms.

In addition, the value of HBOS shares could fall further once the Government takes a stake in the bank.

Preference shares issued to the Treasury will dilute the stakes held by the group’s existing shareholders, with some analysts predicting that the Government will end up owning 70% of HBOS.

If new merger proposals are acceptable, the state could end up with a 40% holding in the enlarged bank.

However, if the deal flounders, HBOS could end up in the company of Northern Rock and Bradford & Bingley, as a wholly nationalised bank.

While the implications of today’s wider events will take months to unpack, the idea of a fully or partly nationalised HBOS immediately raises the question of how board members representing the Government would line up alongside the repossessions policy of the UK’s largest mortgage lender, in the event of a deep recession and mounting levels of defaults on mortgage payments.