Lloyds Launches Hostile Bid for Midland Bank : Acquisitions: The proposed $6.56-billion takeover is unprecedented in the history of Britain’s banking industry.

Lloyds Bank announced Tuesday a proposed $6.56-billion hostile takeover of Midland Bank--an action that could spark the largest shake-up in Britain’s banking history.

Lloyds, Britain’s third-largest bank in terms of assets, confirmed speculation that it will attempt to absorb Midland, the nation’s fourth biggest.

The offer comes in the face of a previous friendly bid for Midland by the Hongkong & Shanghai Banking Corp., which bid $5.85 billion.

Lloyds, which is unrelated to the Lloyd’s of London insurance group, said it is offering stock and cash for Midland pending a review of the bank’s books. The offer constitutes the first hostile bid by one major British commercial bank for another.

Midland’s board said it will review Lloyds’ proposed bid.

A combined Lloyds-Midland institution would be Britain’s largest in terms of market value and branches but remain third in assets. The proposed merger would create a giant banking group doing business under the Lloyds name with 110,000 employees and more than 3,700 branches.

The merger could generate savings of $1.24 billion annually within four years, officials said. This would be achieved by cutting 20,000 jobs and closing 1,000 branches in the United Kingdom.

The merger has run into objections from workers who fear that they will lose their jobs. “We are totally opposed to a Lloyds bid,” declared union official Ed Sweeney, “which would be bad for jobs and bad for the customer.”

Lloyds Chairman Sir Jeremy Morse said that branches and jobs would have to be cut in a merger but insisted: “Certainly there would be substantially more rationalizations with our approach. That is where we would generate the extra resources, which would enable us to give a better service, as well as create a more balanced network of branches around the country.”

The merger also faces potential opposition on another front because Lloyds and Midland have about 15% of the market for small-business loans. Their merger could have an adverse effect in this market, analysts said.

The Lloyds takeover must be approved by regulatory agents: Michael Heseltine, the Cabinet minister who is president of the Board of Trade, and the European Community Commission, because of the Hong Kong bank’s involvement.

Financial analysts generally welcomed the Lloyds bid. “It is going to be incredibly difficult for Hongkong & Shanghai to top this,” said Chris Wheeler, banking analyst at brokers Shearson Lehman Bros.

The Hong Kong bank could drop its own offer and would stand to make a paper profit of more than $300 million for its current 14.6% stake--if the Lloyds offer is acceptable to the British and EC regulators.

The net assets of the combined bank would be $8.58 billion, which would still be less than the largest bank, Barclays, with assets of $10.2 billion, and National Westminister, with $9.35 billion. But Lloyds-Midland would outrank both in market value with $15.76 billion--compared to Barclays $10.2 billion and National Westminster’s $9.7 billion.

Midland Bank, like Lloyds, has it roots in Birmingham. In 1918, it was the world’s largest bank with 1,400 branches in England and Wales. In the 1970s, Midland had taken control of Thomas Cook, which operates the largest traveler’s check business outside of North America.

But Midland had a series of reverses. Notable was its purchase of Crocker National Bank of California for $825 million in 1980, a deal aimed at launching Midland on the international scene. However, Crocker collapsed and Midland sold it for a $1-billion loss in 1986.