As Watson & A ; Head ( 2007: 310-311 ) explained the footings ‘Merger ‘ and ‘Acquisition are used interchangeably but the differences are rather noticeable. The term ‘Merger ‘ suggests the friendly reorganizations of assets into a new organisation ; the two similar sized organisations will so go one entity with both sets of bing stockholders. On the other manus, ‘Acquisition ‘ or a Takeover suggests obtaining one ‘s company ‘s ordinary portion capital by another 1. In an acquisition the one of the organisations is larger in size and fiscal stableness and has the dominant power over the other 1. The ‘Acquisition ‘ procedure is drawn-out and really complicated in nature. Acquisition of any peculiar organisation can hold several motivations, the acquirer may desire to magnify their economic systems of graduated table, market portion or to achieve the fiscal synergism through worsening the company ‘s cost of capital. All these can be classified as:
Horizontal Merger and Acquisition: Involves companies at the same phase of production in the same industry. i.e. : the acquisition of Cadbury by Kraft in 2010
Vertical Merger and Acquisition: This involves companies at different phase of production but within the same industry. The perpendicular integrating can either be:
Forward motion towards the production procedure, i.e: A furniture maker unifying with a retail furniture mercantile establishment.
Backward motion towards procuring the providers, i.e: A furniture maker unifying with a wood provider.
Conglomerate Merger and Acquisition: involves companies in unrelated concern lines. i.e. : A vesture company geting a jewelry company.
Tendencies in M & A ; A activity 2004 to 2010 in Europe Banking Industry:
Figure 1: One in Five companies plans to travel for big scale Acquisition in 2010 & A ; some industries expect to be even more active. Beginning: USB and BCG CEO/Senior Management M & A ; A survey- 2009 on 166 European Companies.
As from the Figure:1 and Graph:1, The M & A ; A tendency in Retail and Insurance industries are in tending nature, but we can detect an tending tendency in the Banking industry M & A ; A in Western Europe compared to the planetary tendency. The Western Europe Banking sector M & A ; A shows a parallel motion with the planetary M & A ; A tendency, proposing that the Western Market is really susceptible to the overall market motion. The inclining nature of the M & A ; A in the Western Baking Sector ( from mid 2005- mid 2009 ) suggests the upturn of the M & A ; A tendency in the during the current recession crisis, the Bankss were doing net incomes with the planetary tendencies in M & A ; A ; as these Bankss are besides gaining fees from their advisory and other services, such as ; syndicated banking installations to back up leveraged commands. The tendency besides suggests the moving ridge of cross-border M & A ; A with the motion of the planetary tendency in order to spread out the concern.
Graph 1: Tendency in Global M & A ; A activity ( 2004-2010 ) , compared to Eastern and Western Europe banking industry M & A ; A. Beginning: Bloomberg
In the current recession old ages ; with low involvement rate, hapless bond outputs and high degree of liquidity- the banking industry within the Western Europe is encompassing the M & A ; A chance as many corporations have pushed back the command trades.[ 1 ]
Table 1: M & A ; A tendency from 1/01/2010 to 29/03/2010. Beginning: Bloomberg
Acquirer Region
Target Region
Average Size ( GBP million )
Global
Global
110.63M
Global
North America
174.94M
Global
Europe
79.60M
Global
Asia Pacific
65.29M
Global
Latin America & A ; Caribbean
331.65M
Global
Middle East & A ; Africa
106.65M
North America
North America
159.79M
North America
Europe
114.29M
North America
Asia Pacific
48.36M
North America
Latin America & A ; Caribbean
47.84M
North America
Middle East & A ; Africa
17.54M
Europe
North America
546.90M
Europe
Europe
65.42M
Europe
Asia Pacific
636.53M
Europe
Latin America & A ; Caribbean
1.14B
Europe
Middle East & A ; Africa
95.87M
Asia Pacific
North America
128.86M
Asia Pacific
Europe
41.68M
Asia Pacific
Asia Pacific
46.56M
Asia Pacific
Latin America & A ; Caribbean
180.35M
Asia Pacific
Middle East & A ; Africa
94.18M
Latin America & A ; Caribbean
North America
183.26M
Latin America & A ; Caribbean
Europe
455.35M
Latin America & A ; Caribbean
Asia Pacific
73.86M
Latin America & A ; Caribbean
Latin America & A ; Caribbean
506.03M
Latin America & A ; Caribbean
Middle East & A ; Africa
11.21M
Middle East & A ; Africa
North America
10.50M
Middle East & A ; Africa
Europe
485.98M
Middle East & A ; Africa
Asia Pacific
21.17M
Middle East & A ; Africa
Latin America & A ; Caribbean
7.62M
Middle East & A ; Africa
Middle East & A ; Africa
134.77M
From the tabular array above, the M & A ; A tendency is tending more towards emerging markets as the mark parts ; although, emerging markets are besides choosing for M & A ; A activities in the same or different emerging markets to spread out the concern.
An Acquisition CASE: Abbey national PLC acquired by Banco Santander SA:
Background of Abbey National PLC:
The Abbey National Building Society was formed following the amalgamation of the Abbey Road Building Society and the National Building Society in 1944[ 2 ]. In July 1989, Abbey became a populace limited company and floated on the London Stock Exchange. With 12 million clients and assets of ? 177 billion, it is ranked the 6th largest bank in the UK by assets and the 5th largest by sedimentations ( with a 9 % portion of the market ) . Reflecting its beginnings as a edifice society, it is the 2nd largest mortgage supplier in the UK, with an 11 % portion of the market. Furthermore, with 15 % of the market, at the clip of acquisition, it was the 3rd largest supplier of insurance protection merchandises and has a big distribution web with more than 700 subdivisions ( EMCC, 2008 ) . Abbey had two chief concern divisions, Personal Financial Services and the Portfolio Business Unit.
Background of Banco Santander Central Hispano SA:
Santander is a bank that has transformed itself: from being a center participant in the Spanish banking market 20 old ages ago, it is now a major planetary bank runing in Spain, Portugal, Germany, the United Kingdom and other European states, every bit good as in Latin America. The group is presently the taking consumer bank in Europe and has over 10,500 subdivisions globally ( excepting those subdivisions gained through the acquisition of Banco Real as a consequence of a trade with ABN AMRO ) . Santander is a technologically advanced bank, with an information engineering platform that is regarded as a strong competitory advantage. Excluding Banco Real employees, the group presently employs about 130,000 people worldwide, of whom 50 % are working in Latin America. There are besides big Numberss of employees working in the UK and Spain. ( EMCC, 2008 ) .
Banco Santander was a little retail bank when it started its concern in 1985, since so it initiated its local market growing through amalgamations and strategic confederations ; and subsequently implemented Low-scale cross-border enlargement through strategic confederations and acquisitions. Gradually, the execution of Large-scale cross boundary line enlargement took topographic point.
Chart 1: Banco Santander Acquisition Transaction Overview till January 2010. Beginning: Reuters
Overview of the Acquisition:
The objectiveness of this peculiar acquisition/takeover was to diversify the concern of Banco Santander PLC to mortgage and fiscal services ; non to advert to research the retail banking chances in the UK market. Therefore, the motivation for this M & A ; A was to derive economic systems of graduated table through synergism and besides to come ining a new market in order to optimise their market portion, hence ; purchasing Abbey was a mean to come in into Europe ‘s 2nd largest consumer funding market. In 2003 Abbey National PLC was pricey for Santander and in 2004, Abbey incurred losingss from its entry into the money market and Santander decided to travel in front with the ‘Acquisition ‘ program in order to perforate the UK market.
Furthermore, the secondary aim of this acquisition was to under-cut the local competition for Banco Santander with the hopes of obtaining higher profitableness in the UK market. Furthermore, Banco Santander already had the expertness in the retail banking and built a strategic confederation with the Royal Bank of Scotland from 1988. Therefore, Santander had already gathered banking cognition and futuristic chances. As stated by Parada et al. , ( 2009: 666-667 ) Geting Abbey National PLC would do Banco Santander the biggest bank in Europe and Latin America and ruling their concern in the strong currencies- the Euro, US dollar and the Pound. The acquisition had boosted the company ‘s operation in six sections: Retail Banking, Global Banking & A ; Markets, Corporate Banking, Private Banking, Group Infrastructure and Sold Life Businesses. After the acquisition Abbey National PLC became Santander UK PLC in January 2010.[ 3 ]
“ Abbey ‘s leading place in the United Kingdom ‘s mortgage loaning market, together with its extended subdivision web, represent for the stockholders of Banco Santander and of Abbey an chance to make value based on the application of the best concern and technological patterns of Banco Santander to Abbey ‘s banking operations. Abbey ‘s concern to a great extent contributes to reenforce our pan-European franchise and provides the Group with a more balanced net incomes watercourse. “ – ( Emilio Botin, Chairman of Banco Santander, July 2004 ) .[ 4 ]
Table 2: Overview of the Abbey National PLC acquisition. Beginning: Reuters
As noted in Parada et al. , ( 2009, 666-668 ) – in 2004 Abbey was enduring from losingss from come ining in the whole-sale money market ; hence, Santander grabbed the chance to establish a friendly command. Santander managed to overmaster all the regulative obstructions. Although the acquisition was initiated in 2004 ; but the probationary completion of this acquisition is expected to be at the terminal of 2010 ; given Abbey National PLC will be renamed as ‘Santander UK PLC ‘ .
Figure 2: The 3 stairss of internationalisation implemented by Santander in 2004. Beginning: Writers.
Acquisition of Abbey National PLC
Graph 2: The dimensions of Santander acquisition with its growing ( 2000 to 2004 ) . Beginning: Bloomberg
The graph above portrays the lifting nature of Santander Share monetary value after the Abbey acquisition at the terminal of twelvemonth 2004.
Defence Strategy implemented by Abbey National PLC:
During the Acquisition offer, Abbey National PLC urged its challengers British Bankss to do counter-bid offer in order to force back the ?8.9 billion offer made by Banco Santander. Furthermore Abbey spent out ?9 million worth of Legal certification to its about 1.8 million stockholders in the hopes of resiling off the Acquisition offer made by Banco Santander.[ 5 ]
Evaluation of the Acquisition:
The asking monetary value for the acquisition was ?10 billion and the sold monetary value was ?8.9 billion. The footings of the Acquisition were based on the equity market capitalization of the two companies over the three months prior to 23 July 2004. Based on the mean shutting market monetary value for a Banco Santander Share on the Spanish stock market was a‚¬8.70 and the mean shutting mid-market monetary value for an Abbey Share on the London Stock Exchange was ?4.69 at an exchange rate of a‚¬1.5054: ?1, the footings of the represent a premium of about 28.4 % with a value of each Abbey Share at ?6.03 or 603 pence ( taking into history the 6 pence for dividend derived function, see the funding subdivision ) , and the full issued ordinary portion capital of Abbey at about ?8.9 billion.[ 6 ]
Financing the Acquisition Bid:
The acquisition was finance through the purchase of Abbey portions and Mixed Bid offer was ab initio offered to predate the acquisition ; where, Santander ( the largest bank in North American and Spain ) offered one of its ain portions and 31 pence in hard currency for each portion of London-based Abbey stockholders.[ 7 ]The particular dividend of 25 pence will be paid along with 6 pence ( 31 pence in entire ) worth dividend derived function to counterbalance the Abbey National stockholders ; as historically the dividend payment of Banco Santander was normally lower than Abbey National Dividend payment ( Table:3 ) . Later on, in November 2004, the acquisition was carried out through an exchange of one new Santander Share for each of Abbey portion.
94.6 % endorsing support ( based on the portion numbering merely 64.8 % stockholders agreed to the acquisition trade ) was received from the Abbey ‘s stockholders in order to continue with the coup d’etat. The trade was deserving about ?9 billion ( or a‚¬ 13.5 billion to be exact ; at the clip of acquisition offer the exchange rate was a‚¬1.5054 to ?1 ) . The hypertrophied company would be 76 % -owned by bing Santander stockholders, with the remainder in the custodies of Abbey stockholders.[ 8 ]
Regulative Model:
The acquisition took topographic point under subdivision 425 of UK Companies Act 1985. Furthermore, Santander had to supply many paper-works and elaborate programs to the European Authorities sing the Abbey Acquisition ( See Appendix, Illustration: 2 ) . As a consequence of the acquisition, Abbey ‘s staying private stockholders became entitled to one Santander portion and the portions are traded in Euros in the Madrid Stock Exchange.[ 9 ]
Table 3: Capital Value estimated for the Abbey Shareholders, Beginning: hypertext transfer protocol: //www.vernimmen.com/ftp/sch-abbey.pdf
Cultural Differences:
Although, the Spanish civilization and British civilization vary in many ways they run concern. In British Culture, organisations rely chiefly on their Human Resource, whereas, Spanish Culture relies more on the technological upgrading. Abbey National PLC had about 33 % back-office employees ; whereas, Santander had about 6 % to 10 % employees as back-end forces. Therefore, after the acquisition the employee figure in Santander PLC came down to 16 1000s from 24 1000s in the UK. At the clip of acquisition Santander ‘s cost to income was 42 % , whereas in UK it was on about 50 % or more.[ 10 ]
The acquisition may be affected by different revenue enhancement inducements and ordinances. Any alteration in the Spanish Banking policy will impact the Santander UK subordinate both economically and financially. Furthermore at the clip of acquisition in 2004, the UK national nest eggs rate is merely 14.7 % of GDP, compared with over 23 % in Spain. Therefore, the disbursement and salvaging nature in the UK are really diverse than in Spain.
As quoted in the Guardian ( 2005 ) : “ Santander.. treats its Spanish stockholders to an remarkably attractive scope of fringe benefits, from discounted medical insurance and alveolar consonant attention to bargain-priced jambons and crates of vino. ”[ 11 ]. Therefore, such interventions in the UK can be perceived as manipulative technique due to the discrepancy in these two civilizations.
Performance in Share Price and Stock Market- Post Acquisition:
Since Banco Santander is a Spanish bank, the portions was listed in Spanish Stock Market and the stockholders had to confront exchange rate volatility since the dividend were being paid in Euros ; however, the Spanish revenue enhancement issue can be rather complicated to the UK stockholders. The Abbey stockholders were given the option to sell the portions to any Spanish Organization in the UK, but Abbey stockholders who held on to their Santander portions over clip have to pay revenue enhancement on any dividends they get.[ 12 ]Banco Santander new portions after the acquisition were non admitted to the Official List or to trading on the London Stock Exchange during the station period of the acquisition.[ 13 ]
In 2009 Santander 1.1 million new current histories with our 25 million clients, and reported to present more than 30 % net income in five consecutive old ages after the acquisition.
Chart 2: The Overview of UK Competitors. Beginning: H1 ’09 Reports Data and BBA Abstract by HSBC
Graph 3: Santander UK PLC portion monetary value public presentation. Beginning:
hypertext transfer protocol: //www.h-l.co.uk/shares/shares-search-results/s/santander-uk-plc — 10-38-non-cum-stlg-pre/charts
The Santander UK PLC is in the 2nd topographic point after Lloyds Banking Group in the Mortgage market portion in UK with comparatively sensible Market portion in Retail Banking ( Chart: 2 ) . Furthermore, The EPS of Banco Santander has been executing rather ill after 2005, it has declined from 0.337 in 2005 to 0.27 in 2009 ( See Appendix, Illustration: 3 ) .
The portion monetary value of Santander UK PLC has been lifting from the twelvemonth 2005 ( Graph: 3 ) , partially because the dividend was 15 % higher than that paid in the mid of the twelvemonth 2005. As of in 2006, 25 % higher dividend was paid. In 2008, Banco Santander announced its understanding to take over Alliance & A ; Leicester PLC ( A & A ; L ) . Under the footings of the understanding Banco Santander will offer one Company portion for every three A & A ; L portions. The European Commission had approved Banco Santander ?1.3 billion coup d’etat of Alliance & A ; Leicester Plc. Furthermore, in twelvemonth 2008, Banco Santander had agreed to purchase Bradford & A ; Bingley PLC retail sedimentations and subdivision web. Santander had agreed to pay about ?400 million to get 2.7 million Bradford & A ; Bingley client nest eggs histories incorporating some ?21 billion of sedimentations. Therefore, Santander UK PLC is still at its growing phase in the UK Market and it is concentrating more on geting local fiscal establishments.
Reuters reported in October 2009 that, Banco Santander SA planes to keep its policy of paying half its net net income in dividends in 2010. Furthermore, harmonizing to the Yahoo Finance ( April, 2010 ) , Banco Santander SA has higher Dividend output of 6.80 % and planetary Foreign Money Centre Banks Industry has the rate at 1.96 % , which suggest a favorable investing option to the possible stockholders. The Santander Group is working towards the policy of maximising stockholders net income.
Furthermore, as reported in Bloomberg, Banco Santander SA is seeking to name its UK concern in London Stock Exchange listing from February 2010 in order to raise financess for possible future buy-up chances, the listing offering may value at more than ?15 billion. Banco Santander is looking for financess to offer for Royal Bank of Scotland PLC web of 300 subdivisions.
On the other manus, Santander UK is willing to sell 25 % of its interest in order to be listed in FTSE 100 and besides to pay out about ?1 billion a twelvemonth in dividends to interpret an attractive trade to the investors ( Beginning: The Times ) .
Decision:
Although, there were many guess against the Abbey acquisition due to its cross-border nature, but all the guesss were proven incorrect. Although, this peculiar acquisition was the most talked about subject in the UK fiscal market, and many believed the acquisition would non make any value for the Abbey Shareholders. With proper apprehension of the local market, Banco Santander had utilized its old acquisition cognition when it came to this acquisition. Banco Santander knows what its UK stockholders want and seeking to populate up that outlook to function their UK stockholders. Banco Santander is seeking to spread out its concern in the UK. Although, till day of the month the Abbey bank transmutation is still under advancement, but Banco Santander had been patient with the UK market because they know- ‘slow and steady wins the race ‘ .
Bibliography:
Huws, U. & A ; O’Keefe, B. 2008. Pull offing Change in EU Cross-Border Acquisition, Case illustration Santander and Abbey: Expansion Enabling entree to new markets. EMCC Company Network, 1-4.
Mayer-Sommer, A. P. , Sweeney, S. & A ; Walker, D.A. 2005. Effect of Bank Acquisition on Shareholder Returns. Bank Accounting and Finance, 1-7, June-July.
Lausberg, C. & A ; Stahl, T. 2009. Motivations and Non-Economic Reasons for Bank Mergers and Acquisitions. The Icfai University Journal of Bank Management, 8 ( 1 ) : 1-25.