As the rest of the City gossips over its morning lattes today, the top figures
at Britain’s third-largest bank will be having a far more painful discussion.
The board of Barclays is likely to have known by late last night whether it
has won the 80 per cent of acceptances required to gain control of ABN Amro,
the Dutch bank that Barclays has been fighting for for the past seven months.
Failure, although not certain, is anticipated at the highest levels of
Barclays. Unless Dutch shareholders produce a shock result, the British
bank’s board is this morning likely to finalise the wording of an elegant
admission of defeat.
John Varley, chief executive and the architect of what would have been the
world’s largest banking takeover, will face questions about his judgment.
But the Barclays boss is expected to come out fighting, pointing out that to
have raised his bid by the estimated €11 billion (£7.6 billion) required to
match the rival consortium offer would have been far more damaging to
investors.
There may be little more than a holding statement today from Royal Bank of
Scotland (RBS), the British bank that has led the consortium battling
against Barclays for ABN. With its offer closing this evening, the bank will
spend the weekend counting its acceptances.
Like Barclays, the consortium would prefer its €71.1 billion offer to be taken
up by at least 80 per cent of ABN shareholders, although it has reserved the
right to accept a lower percentage of votes. The consortium has until
October 10 to inform the market of its acceptances, but hopes to clarify its
position as early as Monday. The offer must be declared unconditional by
next Friday.
For RBS and its partners, Spain’s Santander and Belgium’s Fortis, this is
where the hard work starts. The mammoth task of carving up the global ABN
empire is expected to take about three years. The market will be watching
their every step to ensure that the banks hit ambitious synergy targets.
Barclays had hoped to extract €2.8 billion in annual pretax cost synergies by
2010, as well as €700 million in revenue synergies. RBS, which will obtain
new cash-management operations, ABN’s wholesale banking business and retail
operations in Asia, the Middle East and the US from the deal, hopes to
achieve €1.24 billion in cost synergies and €480 million in revenue
synergies within three years.
Analysts at Executive Research yesterday described RBS’s targets as
“challenging”. “The RBS targets do seem large for a cross-border deal, being
more in line with the average in-market deal,” they said. “[But] it should
also be remembered just how inefficient the acquired businesses are at
present.”
This inefficiency, RBS has argued, will be its saving grace. ABN’s wholesale
banking business, the jewel in its crown, has a cost-income ratio of 89 per
cent. The ratio at RBS’s own wholesale banking business is 40 per cent. If
RBS can introduce some of this efficiency at ABN, it believes it can
transform the Dutch business, bringing its ratio to closer to 60 per cent
and dramatically increasing profits.
Control of ABN is expected to switch to the consortium by October 19 at the
latest. The group of three has 60 days from that point to draw up a
transition plan, detailing issues such as how the business might be split up
and where job losses are likely to hit.
About 19,000 people are expected to lose their jobs at the four banks, which
employ 400,000 people globally, although few cuts are expected in the first
year to 18 months. Jobs are likely to go at all head offices, where there
will be overlapping roles. Rigorous discussions with Dutch work councils
have been under way for months.
The transition plan must be submitted to Dutch financial regulators. At this
point, the consortium will open up a three to six-month consultation process
with regulators, staff and customers. Only when this is complete can cutting
up the businesses begin.
Over the next three years, the ABN brand will slowly disappear in the UK,
although Fortis will keep the name alive in the Netherlands and Santander
will retain the name Banco Real, an ABN business, in Brazil.
Sources said that the fate of ABN’s UK headquarters, an impressive building on
Bishopsgate near Liverpool Street station in London, just a few doors down
from RBS’s City offices, has yet to be decided.
More pressing is the completion of Fortis’s fundraising. With RBS’s €16
billion funding in place and Santander’s successful placing last week of €7
billion in bonds, this is the last hurdle. Subscription to Fortis’s €13
billion capital raising is due to close on Tuesday.
The roadshow has attracted buyers from Europe, Asia and the US, with take-up
likely to be above 96 per cent. A source said: “The rump will get placed on
Thursday but it’s not expected to be big. If there are people who want to
get a big chunk of stock in the rump, they’re likely to be disappointed.”
Consortium’s checklist
—By October 10 at the latest, advise the market on the number of acceptances
received from ABN Amro shareholders
—By October 12 at the latest, declare the offer for ABN Amro unconditional
—By October 19 at the latest, transfer the cash price to ABN Amro and complete
the change of control of ABN to consortium
—Draw up a transition plan and submit it to the Dutch regulator within 60 days
of change of control. Royal Bank of Scotland to make ABN a subsidiary that
is jointly owned by the three consortium members
—Once transition plan is submitted, conduct between three and six months of
consultation with staff, regulators and customers
—Start the three-year process of carving up the ABN global business, cutting
up to 19,000 staff and changing the ABN branding
The story so far
Feb 20 Hedge fund TCI urges break-up of ABN Amro
March 19 Barclays announces discussions with ABN
April 12 Consortium expresses interest in making an offer
April 23 Barclays announces merger with ABN and sale of LaSalle to Bank
of America
April 25 Consortium announces key terms of proposed merger with ABN
May 3 Dutch court rules that disposal of LaSalle needs shareholder
approval
May 5 Consortium tables proposed offer for LaSalle
May 29 Consortium makes offer for ABN
July 13 Dutch high court rules that shareholder approval not needed for
LaSalle sale
July 16 Consortium confirms revised offer for ABN
July 23 Barclays tables revised offer for ABN; China Development Bank
and Temasek take stake in Barclays
July 27 Santander shareholders vote in favour of ABN acquisition
Aug 6 Fortis shareholders vote in favour of ABN acquisition
Aug 10 RBS shareholders vote in favour of ABN acquisition
Aug 13 Barclays offer receives approval from Dutch Finance Minister
Aug 14 Barclays shareholders vote in favour of merger with ABN
Sept 17 Consortium receives approval from Dutch Finance Minister
Sept 20 ABN EGM discusses rival offers
Sept 21 Fortis announces fully underwritten rights offer
Oct 3 European Commission approves Fortis takeover of part of ABN
Oct 4 Barclays’ offer period ends
Oct 5 Consortium’s offer period ends
Oct 9 Fortis rights issue subscription period closes
