Royal Bank of Scotland and Birmingham Midshires formally tore up their marriage contract yesterday and went their separate ways.
The Wolverhampton-based building society, which entered into negotiations with the bank on an exclusive basis last August, will pay some #5m of compensation.
If it is taken over by Halifax before the beginning of 2000, it will hand over an additional #10m to Royal Bank.
The agreement opens the way for the one million or so Midshires members to receive an increase in their pay-outs. These would have amounted to up to #630 each under Royal Bank's proposals and up to #780 if the Midshires can agree a full merger with Halifax.
Royal Bank's chief executive George Mathewson said that the #5m was not enough to cover the bank's costs but the Midshires board balked at paying more.
Mathewson said he was unsuccessful in a bid to secure a deal which would have given Royal Bank an additional payment if a bidder other than Halifax bought the financial services group.
In a joint statement, outlining the details of the agreement, both sides wished the other well although any thoughts of a re-union would seem unlikely.
Halifax meets Midshires soon to pursue its interest although there are suggestions that with the building society out in the open, other predators may arrive.
Midshires chief executive Mike Jackson said that he would consider any proposals from third parties alongside other strategic options including flotation.
The most logical bidder in the eyes of Tim Clarke at Nikko is National Australia Bank (NAB).
It owns the Clydesdale Bank, Ulster-based Northern Bank and the Yorkshire Bank. Midshires would be a logical extension, Clarke added, to take NAB further south in the UK.
Other bidders could include Lloyds TSB, Abbey National, Allied Irish banks or even one of the German landesbanken. Even Nationwide, as the largest building society, may be interested.
Mathewson said that although he valued Midshires as a good business he thought the Halifax would not be paying the right price at #780m and he considered that mortgage groups are not worth their current ratings.
Royal Bank shares closed little changed at 1020p while Halifax tumbled 37p to 861p.
The City does not believe Midshires would go substantially towards meeting the Halifax requirement for growth at a time when it is losing market share in the core mortgage market activities to other contestants.
However, the relationship between Halifax and Royal Bank is now probably such that an agreed bid for the Scottish bank is most unlikely and a hostile acquisition, even if it could overcome political problems, would wipe out Halifax's distributable reserves due to the mandatory goodwill write-off.
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