The consortium of three European banks led by Royal Bank of Scotland was on Tuesday considering the next move for its proposed break-up bid for ABN Amro after the Dutch lender appeared to have shut the door in its face by agreeing a takeover by Barclays.
The consortium, which includes Santander of Spain and Fortis, the Belgo-Dutch banking and insurance group, had hoped to meet ABN executives on Monday to set out its proposal.
However, that meeting was abandoned after ABN announced the sale of LaSalle, its US banking subsidiary, to Bank of America for $21bn in cash as part of the deal with Barclays.
The sale of LaSalle, which does not require shareholder approval, appears to have undermined the consortium’s chances of offering a higher price for ABN. The group now has four options:
● Option 1: RBS counter-bids for LaSalle
Under the terms of the deal with BofA, rival bidders have 14 days in which to submit a higher offer for LaSalle. Given that RBS is interested in expanding in the US, bidding for LaSalle would fit with its stated strategy, while being less complex than a break-up.
However, BofA’s offer will be hard to beat. RBS would have to raise more than $21bn in cash, requiring a large rights issue, and would probably have to promise greater synergies than BofA, which has pledged to cut LaSalle’s cost base in half. Because ABN will pocket the proceeds of the sale, any higher offer for LaSalle would also have the perverse effect of making Barclays’ bid for ABN more attractive.
BofA also has the right to match any competing bid for LaSalle and receive a $200m break-up fee if the deal falls through.
● Option 2: RBS, Santander and Fortis offer a higher price for ABN
The consortium could put pressure on ABN by announcing it would pay more than Barclays.
It could argue that a deal – likely to consist of RBS shares and cash from Santander and Fortis – placed a higher value on the bank and included more cash than the current offer.
If sufficiently compelling, this could force ABN’s supervisory board to cancel the sale of LaSalle, withdraw its recommendation for the Barclays deal, and open the bank’s books to the consortium.
However, it remains unclear on what basis ABN Amro could cancel the sale of LaSalle. Some also question whether the consortium would be able to cut significantly more costs than represented by the combination of the synergies announced by Barclays and Bank of America.
Separating ABN Amro’s operations in Brazil, Italy and the Netherlands would be time-consuming. And Santander and Fortis would have to raise large amounts of cash to finance the deal.
Despite these drawbacks, a rival bid would be the clearest way for the consortium to demonstrate that it was serious. “Corporate lawyers can discuss forever if the sale of LaSalle can be terminated or not, but in our view the only way to show that they really mean business is by putting a higher bid on the table – and we expect them to do so,” said Arturo De Frias, an analyst at Dresdner Kleinwort.
● Option 3: The consortium makes an offer for ABN Amro without LaSalle
Even though ABN Amro’s US operations were central to its plans, the consortium could still be interested in buying the rest of the Dutch bank. The deal would be less interesting for RBS but could still prove compelling for Santander, which is interested in ABN Amro’s Brazilian and Italian operations, and Fortis, which would absorb the Dutch business. However, RBS might think twice about leading such a consortium.
● Option 4: The consortium walks away
While there was no indication yesterday that the consortium was ready to give up, some shareholders suggested RBS should quit.
“Whilst the rarity of an asset like ABN Amro coming up for sale means that no large bank can be criticised for doing some due diligence, RBS will emerge with some credit by walking away,” one investor with shareholdings in RBS, ABN and Barclays said on Tuesday night.