HBOS shares fall on Lloyds deal repricing talk

By Myles Neligan

LONDON (Reuters) - Shares in HBOS HBOS.L, the bank which has accepted a bid from rival Lloyds TSB Group (LLOY.L), fell as much as 20 percent on Tuesday amid market talk Lloyds could reduce its offer by a quarter.

By 2:45 p.m., Lloyds shares were up 6.5 percent at 230 pence, giving its bid a value of 187.5 pence under the recommended offer which will see HBOS investors get 0.83 Lloyds shares for every HBOS share they own.

By contrast HBOS shares were down 11.3 percent at 126 pence, making them the biggest faller in the FTSE 100 share index and putting them at a 31 percent discount to Lloyds' offer price. The stock had earlier fallen as low as 113 pence.

Several dealers cited talk Lloyds could revise its offer to 0.6 of its shares per HBOS share.

Both banks declined to comment on the talk of a possible renegotiation, but said they were pressing ahead with the acquisition process.

"Given extreme market volatility, the market is pricing in an increased risk that the Lloyds acquisition either won't go ahead, or that there'll be an attempt to renegotiate in Lloyds' favour," said Exane BNP Paribas analyst Ian Gordon.

HBOS, dependent on expensive wholesale borrowing for almost half of its funding, has seen its share price fall 86 percent since the onset of the credit crunch in September last year.

Gordon said concerns over the deal centred on the combined group's funding structure, with the turmoil in the banking industry further dampening enthusiasm for an acquisition that is not expected to boost earnings until 2010.