Wednesday, April 25, 2007

RBS wades into battle for ABN with €72bn offer

RBS wades into battle for ABN with €72bn offer
By Maggie Urry
Published: April 25 2007 08:32 | Last updated: April 25 2007 14:31
Copyright The Financial Times Limited 2007

The Royal Bank of Scotland-led consortium of banks fighting Barclays for the chance to buy ABN Amro on Wednesday indicated it would pay €39 a share, or €72.2bn ($98.5bn, £49bn) in total, for the Dutch bank if it abandons its $21bn sale of LaSalle, its US business, to Bank of America.

The move is the latest twist in a fraught battle for control of ABN Amro, which had appeared to have been won by Barclays when its offer, then worth €66bn, was accepted on Monday, ahead of a meeting with the consortium banks planned for that afternoon. That meeting was then cancelled.

RBS, Santander of Spain and Fortis, the Belgo-Dutch bank, said in a statement on Wednesday they had accepted an invitation to meet ABN Amro made in a letter received on Tuesday night. It intended to outline the proposals at the meeting and ask to be allowed to begin due diligence.

The consortium said the indicative offer was worth 13 per cent more than the value of Barclays’ bid at Tuesday’s closing share prices, and would be more straightforward for investors and regulators, reducing the execution risk in a deal.

The €39 offer would comprise 70 per cent in cash and the remainder in RBS shares. The consortium said their proposals “are superior for ABN Amro’s shareholders”. It argued that the deal would “create stronger businesses with enhanced market positions and growth prospects.” This would “deliver concrete benefits to ABN Amro’s shareholders, customers and employees.

But the offer is contingent on ABN Amro unstitching its agreement to sell LaSalle which RBS is keen to own so as to expand its operations in the US. Bank of America would be due a $200m fee if the deal fell through.

Speaking ahead of RBS’s annual meeting on Wednesday afternoon, Sir Fred Goodwin, chief executive, said he was “pretty confident” of getting shareholders’ support for the proposed bid and said the consortium had “got the cash” for the deal.

Sir Fred also ruled out a separate bid by RBS for LaSalle.

In London, RBS shares fell 34p at £19.79. Barclays rose 14½p or 2 per cent to 727p on hopes its bid may not succeed. ABN Amro shares were nearly 5 per cent higher in Amsterdam at €36.63.

Shares in Santander, which were suspended at the open, gained 0.1 per cent at €13.37, while Fortis was down 2.2 per cent to €33.75.

Analysts agreed that the higher offer proposed by the RBS consortium was more attractive to ABN Amro shareholders, and not just because it was at a higher price than Barclays all-paper bid.

Carla Antunes da Silva, banking analyst at JP Morgan, said the consortium proposal had a higher probability of winning than Barclays’ offer for two reasons, the 70 per cent cash component and the greater synergies that could be achieved by the three banks splitting ABN Amro between them.

If Barclays missed out on the deal, she said, its shareholders would be keen to see how it would tap the cost savings in its own business which it had identified during negotiations with ABN Amro.

Ian Gordon at Dresdner Kleinwort said, “RBS will be able to create much more value for its shareholders via the consortium approach” than it could by joining the bidding for LaSalle.

However, analysts said they were unsure whether ABN Amro could unravel the sale of LaSalle, on which the consortium’s proposal depends.

Analysts also suggested that Barclays could raise its offer in response. Barclays was making no comment on Wednesday. Alex Potter at Collins Stewart thought Barclays would have left itself scope to pay more, but he added, “it would be massively value-destructive for Barclays to bid at the €42-43 per share level”.

TCI, the activist investment fund with a near 3 per cent stake in ABN Amro which has been one of the shareholders pressing the Dutch bank to institute changes, on Wednesday threw its weight behind the RBS-led deal.

It called on ABN to allow the consortium “full access to conduct due diligence immediately”, adding that “the board of ABN Amro must recommend the RBS consortium offer, subject to the diligence condition being met, and terminate the LaSalle bank sale.”

FT View

The RBS consortium has put ABN Amro’s supervisory board in a difficult position, writes Peter Thal-Larsen, the FT’s Banking Editor .

Its €39-a-share proposed offer, the majority of which is in cash, is clearly better than the Barclays’ takeover that ABN Amro accepted on Sunday. However, the offer is subject to ABN Amro cancelling the sale of LaSalle, its US banking division, to Bank of America. And it is far from clear that ABN Amro is able to cancel that sale unless RBS or another bank makes a higher offer for LaSalle.

There are many unanswered questions about the RBS consortium. The banks will have to raise €50bn in cash, presumably from their shareholders. It is unclear whether the cost savings they can extract from ABN Amro are significantly more than those promised by Barclays. And the consortium will need to persuade regulators around the world that the break-up can be done in a responsible way.

However, the RBS consortium has raised the stakes. ABN Amro’s directors will not be relishing the prospect of facing shareholders at the bank’s annual general meeting tomorrow.


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