Rival offer could derail ABN Amro - Barclays merger
LONDON: ABN Amro agreed Monday to be acquired by Barclays of Britain for \67 billion (nearly $91 billion), creating one of the worlds largest banks in a carefully constructed deal that reduces, but does not eliminate, the chance of another suitor coming in with a higher bid to buy and break up the bank.
ABN Amro, the largest Dutch bank, said it had arranged to sell LaSalle Bank, its attractive American business, to Bank of America for $21 billion in cash. LaSalles appeal had drawn the Royal Bank of Scotland Group and two other European financial companies to prepare a counteroffer for ABN Amro.
In fact, the Royal Bank of Scotland and its partners, Banco Santander Central Hispano and Fortis of Belgium, were scheduled to meet with ABN Amro executives in Amsterdam on Monday. The meeting was canceled after the European bidders learned about the LaSalle agreement, but they have still requested information about the deal, and analysts do not rule out a rival bid.
The combination of ABN Amro and Barclays, which has increased investors expectations of other cross-border mergers, would create one of the worlds largest banks by total assets, about $3.1 trillion, even after LaSalle is sold, according to Bloomberg data. It will have operations in a wide geographical area, including Brazil and South Africa, with 217,000 employees and 47 million customers.
Barclays agreed to pay 3.225 of its shares for each ABN Amro share, an offer worth \36.25 each. That is 33 percent above ABN Amros share price on March 16, the day before the two banks said they were in takeover talks.
Barclays, which traces its roots back 300 years to the banker James Barclay, agreed to locate the combined banks headquarters in Amsterdam, rather than London. John Varley, the Barclays chief executive who will run the merged bank, will move there from London. The holding company of the new group will be called Barclays.
The banks said their combination would save \3.5 billion a year ($4.75 billion) by 2010, including the elimination of 23,600 jobs, or 10 percent of their current work forces.
As ABN Amro and Barclays executives were explaining the sealed agreement to analysts and journalists at meetings at Barclays headquarters here, the Royal Bank of Scotland and its partners told ABN Amro that it wanted information about the circumstances in which the LaSalle sale to Bank of America could be terminated.
For the group to make a worthwhile counteroffer at this late stage, LaSalle would still have to be part of the ABN group.
A London-based activist fund, the Childrens Investment Fund, which set takeover talks in motion with its demands early this year to either put ABN Amro up for sale or break it up, expressed its own misgivings on Monday about the LaSalle sale.
“We are concerned the pre-agreed sale of LaSalle Bank unfairly hinders the Royal Bank of Scotland consortium,” the fund, which owns less than 3 percent of ABN Amro, said in a statement. It asked the Dutch company to fully disclose all details of the LaSalle sale.
Bank of America is eligible for a $200 million breakup fee if the LaSalle sale is called off “under certain limited circumstances,” ABN Amro and Barclays said, declining to give further details.
In Amsterdam on Monday, shares of ABN Amro fell 1.43 percent to \35.77, indicating stockholders skepticism about getting a higher offer for their shares. Barclays dropped 2.27 percent in London, to 7.33.
ABN Amros chief executive, Rijkman Groenink, emphasized that Barclays was his preferred partner and that he did not see any financial logic in a split-up of the bank. But he said he was willing to listen to what the Royal Bank of Scotland and its partners had to offer.
“The Barclays combination is the preferred option for us,” Groenink said. “It has always been the ambition of ABN to build rather than break.”
Even though the sale of LaSalle Bank, which would turn Bank of America into the largest in Chicago, allowed Barclays to offer more to ABN Amro shareholders, the consortium led by the Royal Bank of Scotland would still be able to offer a higher price for ABN Amro, said Euan Stirling, an investment director at Standard Life Investments in London.
It could afford to make a higher offer because it can essentially split the acquisition bill three ways and generate greater cost savings, analysts have said. After such an acquisition, the consortium would break up ABN, with each member owning a different part of ABNs business.
