Analyzing Santander's Acquisition of Abbey National: A Case Study

This case study examines Grupo Santander's acquisition of Abbey National, focusing on the strategic rationale, financial implications, and value drivers behind the deal. The acquisition aimed to create the 10th largest bank globally through market capitalization, leveraging economies of scale, scope, and risk reduction. Santander anticipated cost savings through IT integration and operational efficiencies, alongside revenue enhancements from cross-selling financial products to Abbey's customer base. The analysis includes terms of the transaction, potential regulatory hurdles, and expected financial benefits, offering a comprehensive overview of this significant cross-border banking merger. Desklib provides access to similar case studies and solved assignments for students.

SANTANDER'S
ACQUISITION OF
ABBEY: BANKING
ACROSS BORDERS

Introduction
The chairman of Grupo Santander, Emilio Botín and Santander’s CEO,
Alfredo Sáenz along with their adjoining collaborators assembled on 26th
uly in the year 2004, assembled at Goldman Sachs’s London
headquarters in regard to declare the acquisition of Abbey National. The
capital valued at the time of acquisition was about 12.54 billion euros
with a premium of 17.4 percent applied during closing price last Friday.
The board of directors for acquisition unanimously supported Abbey and
Santander. At the early stage of start the bank would be retail bank
earning revenues from retail actions. In the recent number of years the
contract would also include the first main cross-boundary deal in
European retail banking.

About Santander
In the year 1857 it was founded. It is specialized in Spanish
American trade
377 percent total shareholder yield from 1994 to 2003.
Concentrated in Spanish & Portuguese -communication
nations Spain, Mexico, Brazil, Chile and Portugal.
Spain: upsurge in market share. Spain recognitions to hostile
plans and acquisitions in year 1989.
Latin America: development through acquisitions and planned
associations that is Bank of America.

Santander’s International
Strategy
Santander’s international expansion initially stressed on
associations with foreign banks such as with Bank of America
foremost to the conception of Bankinter in Spain in the year of
1965. An alliance was framed between the Royal Bank of Scotland
in the year 1988, that only concentrating on cross-ownership. Even
the strategy is also featured on its hostile expansion along with
acquisition in Latin America. In 1994, in Latin America Santander
expanded in Brazil, Uruguay, Rico, Venezuela, Chile and Argentina.
The business of commercial banking in Latin America had asset
valued of 76.6 billion euros, all over 3800 branches.

International Expansion in
Retail Banking.
International expansion in retail banking amplified during the 1990s
outstanding certain value driver’s. With banks manufacturing more
production with extensions by way of mergers and acquisitions. The
reason behind the reduction in cost of production was due to
economies of scale. Cost were save d through fixed inputs. There
was increase in the potential of economies of scope as banks were
able to manufacture and sell goods of complementary nature at a
higher effectiveness. This was noticed by comparison of goods sold
distinctly. Potential for risk decreases as additional international
expansion could prime to divergence and shrink the risk of a bank’s
asset group. It could also inferior the funding risk through expanding
the delivery of funds.

Santander’s Acquisition of
Abbey
It would bring better market power as the pooled firm would be the
10th largest bank in the world, and 4th largest in Europe grounded on
market capitalization. Value formation through sharing actions.
Implementing Santander’s Parthenon banking stage at Abbey, planned
around clients relatively than products, helps evade product storage
tower of outdated stages. Could possibly save 150 million euros yearly
preliminary in 2007. Revenue intensifications finished cooperation
produced by cross retailing Santander’s fiscal products to Abbey’s
clienteles. 92 percent of Abbey’s domestic advancing was in
mortgages. Santander could link these clients to other universal
banking products, life insurance along with protection insurance.
(Busquets, 2015).

Values
1. The value-drivers of this cumulative attention are many:
• Reduction in risk
• Economies of scale- cost saving on inputs of fixed nature.
• Products of complementary nature on better terms basis.
• International integration
• Geographical Integration in order to decrease the risk of portfolio of bank`s asset.
This would allow to lower the funding risk by diverting the provisions of funds.
• Economies of scope -capability of the bank to produce and sell.
2. Main supervisory variations that assisted this modification near worldwide
investment thoughtful.

• BASEL II retain least quantity of wealth on
their hard cover to aspect bewildering
measures; it let banks repetition their own
interior risk-constructed models to assess
their jeopardy shape and their conforming
capital requirements and was subsequently
professed in the business as bountiful
superior, improved-succeeded foundations
a monitoring breakdown in their capital
necessities.
New Basel III IAS (International Accounting
Systems)

Financial Benefits of
Acquisition
• Santander's preceding acquisition of Abbey was expected to provide
advantage Abbey's clients and to enhance worth for mutually Banco
Santander and Abbey shareholders concluded developments in
Abbey's client contribution and operation of knowledge-grounded
effectiveness agendas.
• Total earnings 47% from euro-zone (21% UK only) 31% from Latin
America.
• Over 90% of the mutual loan selection would be in states rated "AA"
or improved by S&P Santander's administration was persuaded that
this marketing attention, with terrestrial assortment, would harvest
attractive development along with improve returns.

Cost Savings
• Abbey's expenditures were too high in respect to their spending capacity. €450
million of cost savings.
Particulars 2005-2006 2007
Sales €45 million
Medium Long run initiatives €150 million
Customer Operation €83 million
IT €128 million
Total €300 million €150 million

 Santander supposed that important scale
welfares could be accomplished in IT in specific
finished the request of shared organization
values in client organization division. IT
technology risk organization assessment phase.
Other regions where it was conceivable to
pledges cost reserves actions were: Acquiring
redeemable after more promising votive terms;
Sales cost discounts from accumulative the
production of Abbey's branches, concentrating
and removing managerial assignment from
branch workplaces, growing competence in
electrical distribution, and growing the efficiency
of outbound call-centers possessions.

 Reductions in over-all and managerial
expenditures from dominant-purpose
optimization, occupational unit incorporation, and
the repositioning of commercial unit possessions,
counting a decrease in corporate occupations.
(Busquets, 2015).
In order to attain all these stuffs Santander
predictable to incur in:
1. Investment including restructuring charges €
560 million becoming € 670million by the end.
2. Short-term tactical advantages € 110 million
becoming €220 million by the end.
3. Distribution of longstanding cost saving € 450
million

Revenue
•From cross retailing of monetary products to Abbey's
current consumers. Abbey had a robust permit in the
trade loans business. Santander concluded that it could
produce important incremental proceeds by cross-selling
life protection and overall banking products to
consumers who attained their mortgages by Abbey, and
by emerging Abbey's loaning to customers to small-to-
medium innovativeness. Expected numbers for 2007.

Lending Areas Amount in million
Protection insurance €29
Consumer Loan € 83
General Insurance €45
Small- Medium Enterprise € 63

Terms Related to
Transaction
Under the terms of the acquisition:
• Holders of Abbey share would obtain new Banco Santander
securities in a 1:1 ratio to Abbey stockholders, exceptional cash
dividend of 31 pence for every share they held.
• Banco Santander was to back the acquisition via a capital
upsurge.
• Issue of € 1.5 million of new shares on behalf of roughly 23,6%
of distributed capital of Banco Santander as engaged by
acquirement.

• While supposing the end of the measures
there were 2 major undecided worries :
1. approval by rivalry establishments UK
Merger Consultant along the European
Commission
2. Potential bids of participants other UK
banks – HBOS – including foreign.
(Dilshad, 2013).

Reference
Busquets, J. (2015). Discovery paths: exploring emergence and IT evolutionary
design in cross-border M&As. Analysing grupo Santander’s acquisition of
abbey (2004–2009). European Journal of Information Systems, 24(2), 178-201.
Dilshad, M. N. (2013). Profitability analysis of mergers and acquisitions: an
event study approach. Business and economic research, 3(1), 89-125.