WHAT to do about Abbey National? In July 1989, Abbey National Building Society became a PLC, offering shares to existing investors and borrowers at 130p per share.

Also thrown in was a free issue of 100 shares in each case. In order to have qualified for the free shares, individuals had to have been a member of the building society by December 31, 1988, and to have remained a member until April 11, 1989.

The terms of the offer being made by Banco Santander Central Hispano (SCH) are that Abbey National shareholders exchange their shares for SCH shares and receive, in addition, a one-off dividend of 31p.

Is there any rush to make a decision? In the words of Jonesy from Dad's Army, "Don't panic".

The offer documents are unlikely to be processed until September, and the earliest any deal could be expected to conclude would be November.

In order to proceed, 75 per cent of shareholders would have to agree to the deal, and with 1.7 million holders still in existence from 1989, this is far from being a done deal.

The prospect of holding SCH shares on the Spanish stock exchange is unlikely to appeal to many, so what are the options?

What is stopping people from selling the shares in the market now? Firstly, though, it is by no means certain that this is the only offer Abbey National is likely to receive.

The share price is currently trading at a premium to the value of the SCH offer. This is not because the market is expecting a rival higher offer, but that it is hoping for a rival higher offer.

Rumours of a US bank showing an interest have so far been dismissed, but cannot be ruled out. The market's biggest hope is that a UK bank enters the fray. A UK bank could extract greater cost savings and would be expected to offer a higher price.

The only snags to this possibility are regulatory concerns. An attempt in 2001 by Lloyds TSB to take over Abbey National floundered on competition grounds.

Although it is possible that domestic bidders may appear, it is almost certain that this would lead to a referral to the UK Competition Commission.

This could create a lengthy investigation, with the arguments centred on whether enough has changed since 2001. The danger for shareholders on such a referral is that SCH could allow its offer to lapse and pursue other opportunities.

This takeover follows swiftly after the attempted takeover of Marks & Spencer, and reiterates the value available in the UK market.

Bradford and Bingley's half-year numbers are likely to be closely scrutinised on Friday, with it being the next most likely takeover target in the banking sector.

Last week saw a spate of companies announcing interim results. With little exception, the figures were very impressive and the FTSE 100 roared back into favour to post a very good week's turnaround at the end of the month.

Previously, the market last month was looking to resemble the earlier weather in the month as a damp squib.

Today sees Royal Bank of Scotland (RBS) announce results. Earnings growth is again expected to be very good and provide further stimulus to the market.

Ironically, RBS holds shares in Banco Santander and vice versa, with the Spanish bank controlling a five per cent stake in RBS.

For investment advice contact Anthony Platts on 01642 608855.

Published: 03/08/2004