Bank of Ireland shares have fallen sharply for the second successive day, with heavy selling by British fund managers driving the shares down 25 cents to €18.15 (£14.29), well below their level before the proposed merger with Alliance & Leicester broke last weekend.
There is a growing view among British fund managers and analysts that the structure of the proposed merger favours A&L, that Bank of Ireland will be disadvantaged by ceding the chief executive position to A&L's Mr Peter White, that the suggested cost savings of £200 million sterling (€240 million) are over-optimistic and that the suggestions of a £1 billion windfall to shareholders may be wide of the mark.
The view that A&L may be getting the better deal is reinforced considerably by the contrasting fortunes of the two share prices.
While Bank of Ireland has fallen back well below its pre-announcement level, A&L shares have been much more robust. Yesterday, the shares were up to 9171/2p sterling, well above the 870p sterling price before the merger talks were confirmed. "The figures speak for themselves and say that A&L are getting the better of this deal, at least as it seems to be structured," said one analyst.
That view was reinforced yesterday in a detailed research note from Merrill Lynch analyst Mr John Kelly, who questioned the logic behind the merger and its proposed structure. In particular, the Merrill Lynch analyst queries the reported appointment of Mr White as the merged group's chief executive and suggests that it would be wrong to rule out some form of joint chief executive structure.
And on the contrasting movements in the share prices, Mr Kelly states: "The relative under-performance by B of I would also tend to echo our sense that B of I has given up relatively much in order to achieve relatively little, while A&L has gained more without giving up its prized take-over protection."
On Mr White, Mr Kelly says: "His record at A&L since conversion has been reasonable enough, but prior to conversion A&L was not generally seen as a particularly well managed company. Moreover, White has no Irish experience (as far as we know)."
On the report that Bank of Ireland chief executive Mr Maurice Keane will become non-executive chairman, surrendering his executive status, the Merrill Lynch analyst states: "If this were true, then B of I would in practice appear to cease to be run out of Dublin, which might prove problematic from a regulatory (and indeed political) standpoint."
Mr Kelly says the merged bank would still be firmly in the "second division" of British mortgage lenders, well behind the likes of Halifax, Abbey National and Lloyds TSB.
"B of I is thus arguably surrendering its independence without actually achieving a particularly convincing strategic position in return. Indeed, one could argue that all B of I is achieving is a major increase in its exposure to one of the most competitive and oversupplied financial markets on earth."
He adds: "In essence, B of I moves from being primarily a play on the fast-growing Irish economy to being primarily a play on the relatively slow-growing and intensely over-supplied UK mortgage market. This would seem an unattractive trade, unless one believes that the risks in the Irish economy are potentially so great that rapid diversification away is imperative. This would not be the Merrill Lynch view of prospects in the Republic."
The Merrill Lynch analyst is also sceptical about the prospects of selling Bank of Ireland's life assurance, pensions and asset management products into the A&L branch network.
He also says that if the merger proposal collapses, then Bank of Ireland could be vulnerable to a bid, "particularly as the company is apparently willing to pass over its chief executive in favour of Peter White.
"This is arguably surprising given that B of I shareholders would have 55 per cent of the combined entity and given White's apparent inexperience outside the UK. As such, B of I may be perceived to be implicitly in a weak strategic position."
