Barclays Drops ABN Bid, Clearing Way for Royal Bank (Update3)
By Ben Livesey and Jon Menon
More Photos/Details
Oct. 5 (Bloomberg) -- Barclays Plc abandoned the six-month battle to buy ABN Amro Holding NV after investors failed to back its bid, clearing the way for Royal Bank of Scotland Group Plc and two partners to complete the biggest banking takeover.
Investors in Amsterdam-based ABN Amro, the largest Dutch bank, tendered about 0.2 percent of their shares to Barclays, according to figures from the bank today. The London-based bank's 62.8 billion-euro ($89 billion) offer was competing wi...
Barclays Drops ABN Bid, Clearing Way for Royal Bank (Update3)
By Ben Livesey and Jon Menon
More Photos/Details
Oct. 5 (Bloomberg) -- Barclays Plc abandoned the six-month battle to buy ABN Amro Holding NV after investors failed to back its bid, clearing the way for Royal Bank of Scotland Group Plc and two partners to complete the biggest banking takeover.
Investors in Amsterdam-based ABN Amro, the largest Dutch bank, tendered about 0.2 percent of their shares to Barclays, according to figures from the bank today. The London-based bank's 62.8 billion-euro ($89 billion) offer was competing with the 71.8 billion-euro bid by Royal Bank, Banco Santander SA and Fortis.
The failure to win ABN Amro leaves Chief Executive Officer John Varley's strategy of increasing earnings growth and reducing dependence on securities trading unfulfilled. It also leaves Royal Bank with the risk of acquiring ABN Amro after rising defaults on U.S. mortgages rattled credit markets and hurt results at Citigroup Inc., UBS AG and Merrill Lynch & Co.
``Barclays is admitting defeat, but they are not damaged,'' said Mamoun Tazi, an analyst at MF Global Securities Ltd. in London who has a ``neutral'' rating on the stock.
Barclays's shares rose 4.5 pence, or 0.7 percent, to 659.5 pence by 3:14 p.m. in London. The bank said it will buy back as much as 1.55 billion pounds ($3.16 billion) of its own stock for cancellation by the end of the year.
``We have noted Barclays's announcement and we fully understand their position,'' Neil Moorhouse, an Amsterdam-based spokesman for ABN Amro, said in a telephone interview. Royal Bank spokeswoman Carolyn McAdam declined to comment.
Growth Potential
By acknowledging defeat, Varley, 51, ends a bid to create the sixth-biggest bank in the world. ABN Amro would have doubled Barclays's consumer banking revenue and given the company new operations in markets from Brazil to India. Varley said in the statement today that the bank has ``strong momentum'' and ``will continue to deliver significant growth.''
The takeover battle began when mergers and acquisitions globally were running at a record pace, and ends at a time when takeovers have slowed amid turbulence in credit markets and concern economic growth will dwindle.
``The acquisition price would have been very high in the current market environment, so maybe one should be happy that the deal fell through,'' said Joost de Graaf, who helps manage about $1.1 billion, including ABN Amro and Barclays stock, at Kempen Capital Management in Amsterdam.
`Paying Too Much'
Royal Bank, Santander of Spain and Fortis, based in Brussels and Utrecht, the Netherlands, plan to carve up ABN Amro. Royal Bank will take the investment-banking and Asian consumer businesses, while Santander will expand into Italy and double its market share in Brazil. Fortis, the largest Belgian financial- services company, will get the Dutch consumer-banking arm and ABN Amro's asset-management and private banking units.
The trio will pay about three times ABN Amro's book value, data compiled by Bloomberg show, higher than the multiple of 2.35 that JPMorgan Chase & Co. paid in its $58 billion acquisition of Bank One Corp. in 2004, the second-largest banking takeover after this deal.
``Royal Bank and Fortis are probably paying too much,'' said de Graff. ``They will have to work very hard to generate the required returns on their investments.''
Barclays agreed to buy ABN Amro on April 23, and sweetened the bid in July by adding cash after the Royal Bank group made a higher offer.
Falling Share Price
Barclays's prospects got a boost on July 13 when a Dutch court decided to allow ABN Amro's planned sale of LaSalle Bank in Chicago to Bank of America Corp. for $21 billion in cash. Royal Bank CEO Fred Goodwin, 49, had been seeking to buy LaSalle to expand his own operations in the U.S.
Varley also sold stakes to Singapore's Temasek Holdings Pte and China Development Bank to raise cash, gain partners in Asia and boost the offer's allure to investors. Barclays President Robert Diamond, 56, predicted on July 23 that the investments by China and Temasek, together with rising earnings, would boost Barclays's share price and the company's bid.
It didn't work out that way. On July 30, ABN Amro dropped its support for Barclays's offer. Barclays's plan further unraveled as its share price dropped as much as 15 percent since Aug. 1, hurt by concern the collapse of the U.S. subprime mortgage market would spur losses at its investment banking arm.
The bank's mostly stock offer valued ABN Amro shares at 33.27 euros each at the close of trading yesterday, 14 percent below the offer of 38 euros a share from the Royal Bank-led group. ABN Amro shares were suspended after the Royal Bank offer expired at 3 p.m. Amsterdam time today.
Breakup Fee
The Royal Bank-led offer contains 93 percent cash, while the Barclays bid included a cash component of 37 percent and the rest in shares. Investors frequently prefer bids with a greater proportion of cash because they are perceived as less risky.
Barclays said the 200 million-euro breakup fee it will receive from ABN Amro will ``significantly exceed'' the costs it incurred in connection with the offer.
Some investors question whether Goodwin should have pushed on with the purchase after losing LaSalle. The Edinburgh-based company's stock has declined 15 percent since April 25, when it first made an offer for ABN Amro, and advanced 0.8 percent to 567.5 pence in London today.
``Once LaSalle was not part of the transaction, that was the opportunity for Royal Bank to say it didn't make sense to continue,'' says Robert Talbut, chief investment officer at Royal London Asset Management, which oversees $63 billion, including Royal Bank shares.
Investment Banking, Asia
Royal Bank, which is paying about $16 billion of ABN's Amro's total takeover price, has said it can deliver 1.8 billion euros in revenue gains and cost cuts by the end of 2010 by combining its investment bank with that of ABN Amro. Royal Bank's securities unit increased pretax profit by 19 percent to 2.2 billion pounds in the first half.
The collapse of the U.S. subprime market has ravaged results at some of the world's biggest financial companies. New York- based Merrill, the world's largest brokerage, will report its first quarterly loss in six years and today said the outlook for the current period is difficult to predict amid ``continued challenges'' in credit markets. UBS, based in Zurich, said on Oct. 1 it had a loss in the third-quarter after $3.4 billion of writedowns on fixed-income securities.
Goodwin will also get ABN Amro's Asia unit, which has 152 branches and more than 17,700 employees, including Singapore, Hong Kong, China and Taiwan. Asia produced 289 million euros of ABN Amro's pretax operating profit in the first half, more than double the year-earlier period.
To contact the reporter on this story: Ben Livesey in London blivesey@bloomberg.net ; Jon Menon in London at jmenon1@bloomberg.net ;
Last Updated: October 5, 2007 10:55 EDT
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