Royal Bank of Scotland and its partners have sweetened their 71.1 billion-euro ($98 billion) bid for Dutch bank ABN Amro, putting in more cash in an attempt to beat rival suitor Barclays.
The consortium, which also includes Spain's Santander and Belgian-Dutch group Fortis, kept its offer for ABN at 38.4 euros per share, 10 percent above an all-share offer from Barclays currently worth about 35 euros per share. But the trio raised the cash component of the bid to 93 percent from 79 percent before.
ABN shares were up 3.9 percent to 37.24 euros by midday, while Barclays shares firmed 1.3 percent to 734 pence, which analysts said showed its shareholders may resist it making a higher offer.
"Even though the consortium is not raising its bid and just sweetening its offer it should be enough to convince the board of ABN and shareholders ultimately that it's a better deal if the Barclays' offer is not revised," said Guy de Blonay, fund manager at New Star, which owns shares in all the European banks in the take-over tussle. "Now the ball is in Barclays' camp."
The increase in cash on offer by the trio follows a Dutch court ruling on Friday which allows ABN to sell its US bank LaSalle to Bank of America for $21 billion. RBS had planned to buy LaSalle but would now receive the cash from the sale of the business instead.
RBS cut the amount of cost savings and revenue benefits it expects to achieve from the deal as the exclusion of LaSalle means there will now be less opportunity to grow revenues in its enlarged North American business.
It now expects to deliver annual cost and revenue benefits of 1.8 billion euros by 2010, including its share of central costs, from just over 2 billion euros estimated before, excluding LaSalle.
RBS Chief Executive Fred Goodwin said the consortium never came close to scrapping the take-over effort, despite the setback of missing out on LaSalle. "It was attractive to buy these businesses last week, it's attractive to buy them this week and that's the basis on which we're going forward. We never got anywhere near thinking of pulling out," Goodwin said on a conference call.
Barclays could now respond by raising its offer or adding some cash to its payment but it may face pressure from some investors who are also big shareholders in RBS and want to avoid the two banks getting into a bidding battle, analysts said. The 20 biggest shareholders in Barclays, who own about 35 percent of its shares, also own just over 23 percent of RBS, according to Reuters data.
Barclays said it will maintain discipline. "We are very clear that we will only proceed with this transaction on terms which produce the right results for our shareholders," Chief Executive John Varley said in comments made available to Reuters. "We have high benchmarks for returns and we will not compromise them."
Goodwin declined to comment on whether Barclays is likely to raise its offer, saying that could only be answered by its rival. "We've put forward an offer that's materially higher than their offer and is up to 93 percent in cash so they're going to have to do something with their offer," he said.
RBS and Santander shares rose 0.1 percent and Fortis slipped 1.3 percent. Even the Barclays offer, which is worth about 65 billion euros, would still rank as the largest ever banking take-over. Goodwin said he spoke to ABN's chairman, Arthur Martinez, and Chief Executive Rijkman Groenink on Friday and over the weekend. The consortium said it had received assurances from ABN Amro that their proposed offer "will be dealt with on a level playing field" with the Barclays offer.
Both have until July 23 to submit formal offers for ABN. The consortium said 5 billion euros of its offer will comprise new RBS shares. Each partner will pay the same amount and receive the same ABN businesses as previously arranged, apart from LaSalle.
RBS will get ABN's wholesale and investment banking unit and its Asian businesses, and even without LaSalle the deal should boost group earnings by 7 percent in 2010, it said. Santander will buy ABN's Italian bank Antonveneta and its Brazilian bank and Fortis will get ABN's Dutch operation to create a dominant Benelux retail bank, and also its wealth and asset management business.