British banking major Lloyds TSB has announced that it has reached an agreement for acquiring UK's troubled mortgage lender HBOS for a consideration of 12.2 billion pounds.
The offer values HBOS at 12.2 billion pound, which is based on Lloyds TSB's closing price on September 17, 279.75 pence, Lloyds said.
Under the terms of acquisition, HBOS shareholders would receive 0.83 Lloyds TSB shares for every one HBOS share.
Existing Lloyds TSB shareholders would own about 56 per cent of Lloyds TSB as enlarged by the acquisition and existing HBOS shareholders around 44 per cent, it added.
"Boards of HBOS and Lloyds TSB believe the acquisition is a compelling business combination which offers substantial benefits for shareholders and customers. The acquisition accelerates Lloyds TSB's stated strategic aim to build UK's leading financial services company by focusing on growing sustainable earnings streams," the statement said.
Lloyds TSB's Sir Victor Blank and Eric Daniels would be the chairman and chief executive of the enlarged group.
The enlarged group would continue to use The Mound as its Scottish headquarters, hold its Annual General Meeting in Scotland and print Bank of Scotland bank notes.
"In addition, the management's focus is to keep jobs in Scotland," the statement added.
Lloyds TSB estimates that a combination with HBOS would lead to an additional contribution to earnings before tax from cost synergies significantly in excess of one billion pound per year by 2011.
It is expected that the acquisition would lead to accretion in Lloyds TSB's earnings per share of over 20 per cent per annum, including cost synergies (before exceptional items) from 2011, it added.
The combined group would benefit from a portfolio of strong and trusted brands including Bank of Scotland, Halifax, C&G and Scottish Widows.
"This is the right transaction for HBOS and its shareholders. Against the backdrop of the very high levels of volatility our industry is experiencing, the combined group will be one of the strongest players in the UK financial services sector....We are recommending our shareholders vote for this transaction," HBOS Chairman Dennis Stevenson said.
However, the acquisition is conditional to certain approvals by shareholders of both Lloyds TSB and HBOS and the sanction of the Scheme by the Court. While merger control approvals and regulatory clearances from the Financial Services Authority would also need to be obtained.
In order to become effective, the scheme must be approved by a majority in number of HBOS shareholders voting, representing three-fourths in value of the HBOS shares that are voted, at the court meeting, the statement added.
In addition, a special resolution implementing the scheme and sanctioning the related reduction of capital must be passed by HBOS shareholders representing 75 per cent of the votes cast at the HBOS Extraordinary General Meeting.
Lloyds TSB is being advised by Merrill Lynch for this deal and also for corporate broking, while Citi and Lazard are also providing financial advice to the company.