Abbey National has rejected a merger proposal from the Bank of Ireland (BoI) for the second time, after BoI gave fuller details of its bid including a cash offer for shareholders.

Abbey National, which initially rejected the offer last week, said a meeting of its board had "unanimously concluded that the best route to maximising value for shareholders" was through internal restructuring.

Analysts had earlier suggested that Abbey would rebuff the offer and continue to seek a sale for its First National unit, the consumer credit business it put up for sale last month.

But they say the rejected merger proposal could now leave Bank of Ireland vulnerable to a bid.

Where does the bank go from here? It means they're vulnerable to some extent

Joe O'Dwyer, Montgomery Oppenheim

Second time unlucky

BoI described its merger proposal as "an obvious strategic fit" which would deliver substantial savings.

It identified savings of �400m and said the commercial rationale for a merger included "reducing risk and enhancing returns for both sets of shareholders".

However, Abbey National thought otherwise and described the fit as "questionable" and the cost savings as "limited".

Analysts at Charles Stanley had pointed out that the �400m savings would not materialise until 2007.

"Abbey could have fixed itself by then," said the analysts.

Opportunistic?

Abbey National has been viewed as a takeover target for some time, having lost a third of its share value in the last 12 months.

The bank is still without a chief executive.

BoI had offered 90 to 95 of its owns shares in exchange for 100 Abbey National shares, as well as 130p per share in cash.

This equates to a premium of around 20% to Abbey National's closing price before news of the bid sparked a rally, but is still below an offer from Lloyds TSB a year ago.

Patrick Kilduff from Aberdeen Asset Management said the BoI offer was "a little bit opportunistic" and suggested Abbey shareholders would "shoot it down".

The Bank of Ireland had also proposed that the new bank be based in Dublin and led by its chief executive Mike Soden.

What now?

Abbey National is now expected to continue its restructuring in an effort to lift profits.

Reports have suggested the bank has already received offers for its First National division, which could be worth up to �700m.

The Bank of Ireland, meanwhile, could itself be a takeover target.

Joe O'Dwyer at fund manager Montgomery Oppenheim, said of the Irish bank: "Where does it (the bank) go from here? It means they're vulnerable to some extent".