Speculation about a takeover offer has sent Group's share price soaring by almost 20%
Speculation that a takeover bid will be launched for Alliance & Leicester has seen shares appreciate by nearly 20% in the past 12 months.
The share price of the group, which is widely owned in single company Peps, is currently at 868p, just below its 52-week high price of 890p.
Chris Hegarty, Investment Manager at Edinburgh Fund Managers, said: 'The market's main interest is whether the company is going to be bought by a rival. The value of the stock in the event of a takeover is thought to be £10, while the shares are worth £7 if the company remains independent. Currently, the price of the stock is trading between this range which shows that the market is factoring hope for a takeover.'
The management of the company insists its aim is to remain independent, but if a bid is made it has acknowledged it has the responsibility to consider whether it is in the best interest of shareholders.
The share price is at a premium as Alliance & Leicester's hostile bid protection expires in April. This takeover protection has been in place since the firm changed status from a building society to a bank five years ago. The end of this period of protection means that any bid executed after April will not need the approval of the board.
However, Neil Cumming, associate director at Fidelity Investments, argued that there is not enough justification for a takeover. He said: 'Alliance & Leicester looks vulnerable but the firm is short of a legal justification for a takeover. UK rivals might justify a takeover bid as cost-saving but most rivals might be precluded from buying the company as there are regulatory concerns. He added: The UK market is already concentrated and the closure of branches and redundancies might raise some political issues.'
A trail of succession problems has resulted in the company not performing as well as its rivals in share price terms.
The company has been without a CEO since 1999 and has recently appointed a new chief executive, Richard Pym. Cumming said: 'Alliance & Leicester has a dominant chair- man in John Windeler and most executives who joined the company, have left after a short while. It has now appointed Pym as he has already worked with the chairman before. But the market would have preferred a stronger character who can stand up to the chairman.'
Nevertheless, the company's balance sheet is fairly strong. Revenue rose by 4% to £1.28bn in 2001, while dividend yield is standing at 4.69p, compared with 5.44p in 2001.
Hegarty said: 'There has been evidence that performance has picked up from last year. Its operational performance has turned around and the company is targeting 4% growth for 2001, while implementing a cost -cutting programme aiming to reduce cost by £100m by 2003.'
'The profitability should increase, as the company is well capitalised. It has said that it is unlikely to redistribute the excess capital in 2002. It might buy back its own shares, which will drive earnings per share higher, or announce a special dividend later this year.'
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