Vote held on Lloyds TSB-HBOS merger

9:46am Wednesday 19th November 2008

Lloyds TSB shareholders are to vote on the bank's rescue takeover of ailing rival HBOS.

If the deal gets the go-ahead, it will create a banking giant with around 145,000 staff and 3,000 branches across the UK.

Competition rules have been waived to allow the deal but unions worried over thousands of possible job cuts through the £1.5 billion in planned cost savings will protest at the Glasgow meeting.

Lloyds' management believe the proposed deal "represents a compelling opportunity" to create the UK's leading financial services group.

HBOS investors will receive 0.605 of a Lloyds share for every one of their own shares, in a deal valuing HBOS at £4.3 billion based on last night's closing prices.

HBOS shareholders will vote themselves on whether to accept the deal in December, but were warned by their own chairman Dennis Stevenson last week of the risk of nationalisation if the takeover falls through.

As well as the HBOS takeover, Lloyds shareholders will also vote on plans to raise a total of £5.5 billion through the issue of new shares and special preference shares to strengthen its balance sheet.

Lloyds will not be able to pay dividends as long as any of the £1 billion in preference shares held by the Government are outstanding.

HBOS is also planning to raise £11.5 billion through a Government underwritten share offer and preference shares. If the new shares offered by both banks are snubbed - which is likely as their stock is currently trading more cheaply on the open market - the Government will be left with a stake of more than 40% in the combined entity.

But if the takeover does not go ahead the Financial Services Authority (FSA) has told Lloyds it would need to strengthen its balance sheet by £7 billion - with no guarantees over whether it could successfully raise the funds.