LONDON (AFP) - HBOS said it had decided against bidding for the British mortgage bank Abbey National, clearing the way for an agreed offer from Spain`s Banco Santander Central Hispano (SCH).
HBOS chief executive James Crosby said the bank turned its back on Abbey due to the "considerable" risk it would face with a bid.
"We`re not able to convince ourselves that we could have bought Abbey on terms that could enhance our shareholder returns. We`re not prepared to overpay," he said.
"The potential synergies have made it hard for us to walk away from Abbey. I don`t think there`s anything similar to that in the UK," he told AFP`s financial newswire AFX in a telephone interview.
HBOS, which was formed by the merger of home-loan specialist Halifax and Bank of Scotland three years ago, had said on August 2 it was considering launching a counter-bid for Abbey National.
Abbey said in late July that it had accepted a takeover bid from SCH of one new SCH share and a special cash dividend of 31 pence for each Abbey share, in a deal valued at 8.9 billion pounds (13.0 billion euros, 16.0 billion dollars).
The European Commission is set to conclude its preliminary investigation into SCH`s bid on competition grounds by September 17.
SCH chairman Emilio Botin welcomed HBOS`s announcement, saying the Spanish bank was "on track" to clinch a takeover of Abbey.
Shortly after HBOS announced it was walking away, SCH unveiled plans for a secondary share listing in London and promised dividends in sterling rather than euros.
SCH`s move aims to win over Abbey shareholders unhappy with the idea of owning shares in a Spanish bank that they could not readily trade in their home market.
SCH now expects to complete the acquisition on November 12. Abbey shareholders are to vote on the deal on October 14.
The Spanish banking group also said it expected efficiency savings from the deal to reach 450 million euros a year within three years of completion. Revenue synergies are now expected to add 220 million euros a year to pretax profit by 2007, an increase on its previous estimates.
The price of shares in HBOS rallied 4.13 percent to 744 pence in the wake of the bank`s announcement, while Abbey National tumbled 5.41 percent to 577 pence.
SCH shares fell 1.70 percent to 8.11 euros in Madrid as dealers expressed concern about the cost of the bid.
However an analyst at Dresdner Kleinwort Wasserstein said SCH`s plans for a secondary listing made the deal less risky from an operational and regulatory point of view, and reduced the risk of Abbey`s retail investors rushing to sell their new SCH shares.
"The deal now looks like a smooth, easy one, and integration risk is low," the analyst said.
Dealers said HBOS`s withdrawal also removed fears of a takeover battle between the two banks, in which SCH would be forced to raise its offer.
HBOS would remain on the lookout for other potential acquisitions, said Crosby.
"We will look at other opportunities. Would we consider doing something internationally? Yes, we might," he said.
But Crosby ruled out acquiring smaller banks as it would involve "too much effort for too little reward."