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Just when Barclays looked to be sewing up a deal with the Dutch bank ABN Amro, rivals Royal Bank of Scotland, Fortis and Santander on Wednesday indicated that they would be prepared to offer €39 a share, subject to due diligence. This price represents a 13 per cent premium to Barclays’ all-share offer as of Tuesday’s close, and with 70 per cent payable in cash.
The RBS consortium has shown it is serious, but can it deliver? A bid would require €50bn of financing, mostly equity – ABN is not a supermarket, which can be leveraged up with bridge financing. RBS and co will have to demonstrate they can come up with the cash in short order.
If a consortium bid does appear feasible, ABN Amro will find itself in a bit of a bind, having just agreed to sell its US banking operation LaSalle to Bank of America – a transaction upon which the Barclays deal is dependent. It is not clear whether it could, in fact, unravel its agreement with Bank of America, which has the right to match any rival offer for LaSalle in the short period before the deal closes. Furthermore, the RBS-led consortium will be reluctant to trump BofA’s bid for LaSalle, which would have the secondary effect of increasing the value of the Barclays bid (since Barclays would benefit from the higher sale price for LaSalle) and would still leave BofA with the option of matching the offer.
In spite of these considerable complications, the onus is on ABN’s board to make sure it secures the best possible price for its shareholders. Is it possible, for example, under the terms of the BofA agreement, for the consortium to launch a higher bid for LaSalle, conditional on the success of a bid for the whole of ABN (a structure which is not now so far away from the BofA/Barclays arrangement)? Logically, the consortium, with more overlapping businesses, should be able to come up with bigger cost-cutting opportunities, in spite of some tricky unbundling, and therefore a higher price. That said, with lots of fund-raising ahead, RBS and friends will have to ensure their own shareholders stay keen on a deal at an escalating price.