Shares in Allied Irish Bank (AIB) jumped 56 cent yesterday on the news that it had considered a merger with its 23 per cent-owned US associate M&T.
The shares rose to €16.60 as the market digested the news before falling back to around €16.40 as analysts concluded that such a merger was ill-considered and now seemed unlikely.
The bank did not comment yesterday but, in a statement issued to staff, chief executive Michael Buckley said that the proposal had been considered and rejected by the AIB board last autumn.
A spokesman for M&T refused to comment yesterday.
Sources familiar with the discussions say that the proposal centred on a reverse takeover of AIB at €13 per share, which would have represented little or no premium to the AIB share price at the time.
However, a bank spokesperson said last night that the discussions did not reach the stage where price was discussed in any detail.
In his statement, Mr Buckley said the merger was one of "two plausible long-term strategic scenarios for AIB" that were put to the board. There was a "very strong consensus by the full board" that the bank remain as a standalone entity.
The statement also said that the group executive - a committee of senior executives - had favoured the standalone option when it debated the issue, but the proposal was still brought to the board.
Mr Buckley defended his decision to do so on the basis that it was the job of the chief executive to "challenge the status quo".
He said the decision was not related to the crisis over tax evasion by former executives and the overcharging of customers that engulfed the bank at the time.
Mr Buckley said the discussion had been facilitated by the chairman, Dermot Gleeson, but "he did not sponsor the merger scenario".
Davy Stockbrokers - which is owned by AIB rival Bank of Ireland - said that, while the merger might have represented a "friendly defensive option at at time when the group was under pressure... we would seriously question the logic (not to mention the capacity) of M&T, a medium-sized US regional bank buying a larger Irish bank".
Séamus Murphy, an analyst with Merrion Capital, noted that the board's willingness to discuss a merger of AIB with M&T last year was in contrast to the management's public stance which "has always appeared to us as unwelcoming of a takeover approach".
Mr Murphy added: "At least now, we have more confidence that any approach would be given due consideration."
NCB Stockbrokers said that the proposed merger would have been very badly received by AIB shareholders (and probably M&T shareholders) as the synergies would have been minimal.
Eamon Hughes, an analyst with AIB-owned brokers Goodbody, said that "the rejection by the board indicates that such a proposal is no longer on the agenda".
He argued that AIB was not vulnerable to a takeover as its shares had risen 20 per cent since the merger was mooted and "the financial dynamics for any predator would have deteriorated".
