(by Helen Russon)

On Monday Abbey of the UK and Spain's Santander Central Hispano agreed an £8.5bn ($15.6bn) merger to create Europe's largest cross-border retail banking deal. According to latest estimates, the value of Spain's Banco Santander Central Hispano is about £8.5bn ($15.6bn). Shareholders in the UK bank will receive one new SCH share for each Abbey share and it was also declared a special dividend of 31p per Abbey share, which includes 6p for a dividend differential.

Based on SCH's closing share price on July 22, the merger values Abbey at about £8.5bn or 578p per share. In early London trading, Abbey shares were down 3.7 per cent at 558.5p. SCH shares remain suspended since Friday, when they fell more than 4 per cent amid speculation about the bid for Abbey.

SCH is expected to make arrangements for Abbey's 1.7m retail shareholders, but many of them are unlikely to want having Spanish bank’s shares. This will include providing a dealing facility for investors to trade in the shares at low cost.

SCH, Spain's biggest bank, estimated that within three years of completion cost and revenue synergies related to the deal would contribute an additional €560m ($697m) to pre-tax earnings. With the acquisition the Spanish group will gain a springboard in the UK banking market, where Abbey is the sixth-largest operator. The deal will be financed by means of a capital increase. SCH has authorization from its board to purchase up to 190m shares, representing about 4 per cent of its issued share capital.

Abbey's executive team is expected to remain in place. Luqman Arnold, Abbey's chief executive, will stay in his position until early next year to help ensure a smooth transition.