When one bidder is not enough

 
David Hellier
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With the withdrawal of the Co-op from the £750m deal to buy 632 bank branches from Lloyds Bank, the government’s plans to inject greater competition into the sector are not looking especially healthy.

Santander’s deal to buy branches from RBS similarly fell apart towards the end of last year and now both RBS and Lloyds are hoping to sell the businesses the EU is making them divest through initial public offerings (IPO) on the London stock market.

In Lloyds’ case it is unfortunate that the bank, its management and its advisers from JP Morgan and Citi, did not take a bid from another possible challenger bank more seriously.

Lord Levene’s NBNK, a shell company that raised money specifically to invest in bank assets, made a bid for the Lloyds branches, known as Project Verde, at the same time as the Co-op, but feels it was never given a proper chance to compete.

Levene claims his vehicle bid £850m for the assets, £100m more than the Co-op’s offer, though how both offers break down in terms of upfront payments, subsidies and deferred consideration is difficult to fathom.

NBNK certainly feels that the Lloyds board never offered it due consideration and meanwhile took at face value assurances that the Co-op was able to fund a deal.

In retrospect it looks as if Lloyds made the wrong decision in going forward with the Co-op. It certainly looks foolish to have dismissed NBNK so totally when it entered into an exclusivity agreement with the Co-op in December 2011 and should have extracted water-tight assurances before doing so.

Going forward, the plan to IPO the Lloyds branches looks a challenging one to say the least.

While the London IPO market has re-opened, it will still be tough to sell an asset that is being sold forcibly and one that has just been snubbed by its preferred buyer because of a worsening outlook.

Most things are saleable if the price is right but Project Verde is fast looking a management failure for Lloyds and its chief executive Antonio Horta Osorio.

david.hellier@cityam.com