TNAG-2474-FCO40-3604-Business-matters-in-Hong-Kong-acquisition-of-Midland-Bank-by-1992 — Page 90

COMMERCIAL-IN-CONFIDENCE

POSSIBLE AQUISITION

ANNEX

BY

OF MIDLAND BANK PLC ("MIDLAND") LLOYDS BANK PLC ("LLOYDS") OR HONG KONG AND SHANGHAI BANKING CORPORARTION ("HSBC")

On 28 April Lloyds announced that it was considering making an offer for Midland. Lloyds would offer one new Lloyds share plus 30p cash for each Midland share, which would value Midland at £3.7 billion. Lloyds laid down two preconditions for the making of an offer: that they be given all information on Midland that had made available to HSBC, which had earlier announced a proposed bid for Midland; and that either Lloyds' proposed bid would not be referred to the MMC, or, if it were referred, that the HSBC bid would also be referred. HSBC made a formal offer on 8 May. Its bid appears to fall under the European Community Merger Regulation (ECMR) and the UK's views have already been given to the Mergers Task Force as follows:

i)

Jurisdiction

On the information provided, the transaction constitutes a concentration with a Community dimension within the meaning of the ECMR.

ii)

Competition

The proposed merger will not give rise to competition concerns for the UK market and we can confirm that we do not intend to invoke Article 9 of the Regulation.

iii) Article 21(3)

We are still considering whether there is a case for seeking a public interest exit to UK jurisdiction under Article 21(3) of the Regulation.

JURISDICTION

2.

A merger between Lloyds and Midland would qualify for investigation under the Fair Trading Act (FTA) both on asset grounds and, for certain markets, on the market share test. Lloyds' announcement is regarded as giving rise to a "merger in contemplation" under s.75(1) FTA, because it would appear to be a preliminary step towards a merger. On 7 May the EC Commission announced that on the information available to it, a bid from Lloyds would not fall within the Commission's jurisdiction under the ECMR.

TIMING

3. There is no statutory or Takeover Panel timescale applicable to Lloyds' proposal. But the EC Commission is considering the HSBC bid (which appears to fall under the ECMR, see below) and is expected to announce its decision on

1

COMMERCIAL-IN-CONFIDENCE

Page 90Page 91