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Aug 31, 2008

M&A focus: Companies looking for bargains

M&A activity for the month including Santander argeeing a deal with Alliance & Leicester

M&A activity may be at a low ebb, with western economies in the middle of a slowdown, but there are still several companies looking for bargains. IR teams at potential targets need to be on their toes because the situation - and the demands of the job - can change quickly.

Such is the case at Alliance & Leicester (A&L). The UK mortgage lender has agreed a cut-price sale to Spanish bank Santander for around £1.3 bn ($2.6 bn). A year ago, a buyer would have had to pay more than three times that amount. The two parties have said they expect the deal to be completed in or around October 2008.

'The board has recommended the offer so we have been going out to shareholders to make sure they understand the reasons for that recommendation,' says Mark Jones, head of IR at A&L. 'Investors are asking a whole range of questions. For example, they want to understand the process the board went through and why it approved the deal.

'We organized a roadshow to discuss the deal with major shareholders. I've spoken to some investors - not the largest ones, as the chief executive and finance director have gone out to see those directly. The meetings have been put together mainly through our advisers, JPMorgan Cazenove and Morgan Stanley.'

In addition, Jones handles a small number of inquiries from retail investors. He does this less now than when the sale was first announced, however, because the bank's registrar, Capita, has set up a helpline to alleviate some of the pressures being placed on the IR department. 

Other aspects of the deal handled by the IR department include working on the scheme document, the proposal of how the company will carry out the transaction that must be approved by shareholders at an extraordinary general meeting.

'The next big thing is to get the scheme document ready for dispatch, making sure it is correct when it is sent out to shareholders,' comments Jones. 'It is a process driven primarily by our legal advisers, Allen & Overy.'

Less successful was the proposed tie-up between Bradford & Bingley (B&B), another UK mortgage lender, and Texas Pacific Group (TPG), a global private equity company.

B&B brought in TPG to save its troubled rights issue, with the US firm pledging £179 mn for a 23 percent stake in the bank - another sale viewed by commentators as cheap. Under the plan, existing investors would then stump up a further £79 mn. A downgrade by rating's agency Moody's, however, triggered a clause that allowed TPG to walk away from the deal.

B&B had to be saved again, this time by some of its largest shareholders. Investors like M&G, Legal & General, Insight Investment and Standard Life rallied round to support an enlarged £400 mn rights issue. The capital raising is being fully underwritten by Citi and UBS.

'While we are disappointed that TPG intends to terminate its subscription agreement, I am pleased that Citi, UBS and our major shareholders continue to support our proposed capital issuance,' says Rod Kent, executive chairman of B&B, in a statement.