The protracted battle over the acquisition of ABN Amro took a turn for worse for Barclays on Monday. Its rival for the buyout - consortium led by RBS - raised the offer (cash component only) to end Barclays’ hope once and for all. The consortium has improved bid to €71.1 billion, or $97.8 billion, despite the fact that it has lost the American arm of ABN, La Salle to Bank of America.
Improved offer
The bid by Royal Bank of Scotland, Fortis (Belgium), and Banco Santander Hispanio (Spain) is worth 10 per cent more than the rival offer by Barclays - Barclays’s offer stands at e34.49 while the offer by Royal bank of Scotland stands at e38.40, all in stock. No only that, the newest proposal by RBS offers more cash than the initial one. Now it offers 93 per cent cash and 7 per cent in RBS shares, compared to its earlier offer of 79 per cent in cash.
This might be one of the factors with the potential to turn the tide in favor of a takeover by RBS consortium.
Why Barclays might be losing out?
While many believe that Barclays had a victory of sorts on Friday, they also hold that the British giant may already have lost the real race. The main reason an increasing unwillingness on Barclays’ part to improve its offer. Its chief executive acknowledged as much on Monday. John Varley stated:
We’re very clear that we will only proceed with this transaction on terms that produce the right results for our shareholders. We have high benchmarks for returns and we will not compromise them.
There is another side to Barclays’ refusal to increase the stakes. It is believed that Barclays will find it harder to raise any more cash compared to the consortium.
Another factor that could dent Barclays’ aspirations for the Dutch company is the fact that ABN Amro, which had long favored a deal with Barclays, has now changed its stance dramatically. Although the company has not gone on record to say so itself, RBS believes that it’s offer “will be dealt with on a level playing field.”
And if anyone believed that sale of La Salle would reduce the consortium’s interest in ABN, he was silenced as RBS chief executive Sir Fred Goodwin stated yesterday:
It has always been our preference to get LaSalle, but we did not get it. But it does not undermine at all the rationale [for the ABN deal].
Both the parties have 23rd July as the deadline to submit their formal proposals. Barclays’ last straw of hope rests on Fortis, which is perceived as the weak link in RBS’ consortium. Barclays would be hoping that Fortis will be unable to raise the required cash to fund its share of the deal.
But the real question remains, what happens if Barclays fails to takeover ABN Amro? That would not only lead to a considerable fall in its reputation of being a ‘big fish’ in the banking industry, but simultaneously, it’ll leave the British company itself as a target for potential mergers. The hunter might become the hunted if it looses the prey this time around.
