Alliance & Leicester shares soar amid takeover rumours

Shares in mortgage lender Alliance & Leicester soared to a record high today after yet another report that it had jilted France's largest bank and was in takeover talks with a Spanish suitor.

Since the start of the year, Alliance & Leicester has been at the centre of rumours about a possible takeover.

Within the last two weeks, Britain's seventh-largest bank rejected an informal offer from Credit Agricole, reportedly worth £5.8bn, or 1,300p a share, according to the Independent newspaper.

Chief executive, Richard Pym, said the bank was worth 1,500p a share, or £6.7bn, according to the Independent report.

Shares in the UK lender climbed to an all-time high this morning of 1,254p, before dropping slightly to 1,230p, up 3.4% on the opening price.

Both Alliance & Leicester and Credit Agricole refused to comment, although the French bank is well known to be in the market for a takeover. Any formal bid would require a stock exchange announcement.

The French bank "may become more serious after considering its options", said the Independent.

With about 130,000 employees, Credit Agricole is France's largest high street bank group following its takeover of Credit Lyonnais in 2003.

Adding to the speculative fire are rumours that Alliance & Leicester has already spoken to another interested buyer, the Spanish bank Santander, owner of rival lender Abbey.

Talks with the Spanish bank are believed to be in the range of 1,400p a share, according to the Independent.

Some analysts say Alliance & Leicester is not worth as much as the numbers being mentioned would suggest.

"We believe there is a significant risk, bolstered by the slowdown in the UK's unsecured personal loan market, of earnings disappointments leading to share price weakness," said Julian Livingstone-Booth, analyst at Goldman Sachs.

He said that a fair market value for Alliance & Leicester, including acquisition benefits, would be only 1,087p a share.

Analysts had previously suggested that Santander might make a move for Alliance & Leicester, but it was not expected so soon after its purchase of Abbey in November 2004. Santander posted profits of £596m in 2005, compared with losses of £21m in 2004.

If Santander did buy Alliance & Leicester, it would control around one-fifth of Britain's new mortgage lending and could nip at the heels of dominant player HBOS.