Ultimate Law Guide Case study: Royal Bank of Scotland Consortium Takeover of ABN Amro
Interesting aspects to discuss at interview
Background to the RBS Consortium acquisition of ABN Amro
In April 2007, the European Commission ordered Dutch regulators to allow the takeover of ABN Amro (ABN). Soon after, ABN received a €66bn takeover bid from Barclays Bank. Two days later a consortium (the RBS Consortium), led by Royal Bank of Scotland (RBS) and including Fortis Bank and Banco Santander, made an even bigger offer of €72bn, €50bn of which would be cash and the remainder of which would be made up of shares in RBS.
Significance of the deal
The takeover is unrivalled in terms of size and complexity and is hugely significant as it is the world’s biggest banking transaction to date and the first cross-border takeover of a European bank. For example, the €13.4bn rights issue that Fortis needed to fund its contribution of the €70bn was the biggest ever in Europe. No European bank had ever succumbed to a cross-border hostile bid and it is interesting that the acquisition was for a perfectly solvent conglomerate. It is commonplace for acquisitions like that of ABN to happen in circumstances where there is a disparity between two organisations or where one organisation is in financial crises. An example of this is the Virgin Group’s proposed acquisition of Northern Rock following the effect of the credit crunch, where share prices tumbled to an all-time low.
In the case of ABN, you have a bank with a significant presence in the European banking market and its performance certainly did not suggest that it was in any financial difficulties. Although takeovers are often triggered by the weakness of the target, ABN is a huge organisation with offices in 53 countries and its reputation was never that of a desperate operation. To give you an idea of the size of ABN Amro’s operation, here are a few facts provided by fsteurope.com:
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Founded in 1824 Total operating income €22.658bn Ranked as the eighth largest bank in Europe Headquartered in Amsterdam, with more than 4,500 branches in 53 countries Employed more than 105,000 people before the takeover
With the exception of HSBC, American banks such Citigroup, Bank of America and JP Morgan dwarf all of the European banks and tend to top most of the league tables in terms of size and revenue. As the eighth largest bank in Europe, a combined force of ABN and RBS, or even Barclays, would allow the new owners of ABN to move up into the league of some of their American counterparts. One of the significant factors had been ABN’s sale of LaSalle, its US banking division, to Bank of America for a total of about €12bn in cash.
The offers: RBS Consortium versus Barclays
The takeover is described as hostile because the board of ABN Amro did not recommend either the offer from Barclays or the RBS Consortium. It was therefore the shareholders (owners of the company) who were instrumental in voting. Shareholders will typically support the offer that delivers them the biggest gains. Among ABN’s largest shareholders were pension and fund managers, and because they own such a large proportion of the shares their votes were crucial.
The RBS Consortium was competing against Barclays Bank, which outlined plans for a €65bn takeover of ABN in March 2007. Market forces including the credit crunch (for more information see ‘The Ultimate Law Guide to the Credit Crunch and the implications for corporate law firms’) and the subsequent support offered by the Bank of England, which pushed down Barclays’ share price, meaning it was unable to match the €70bn proposed by the RBS Consortium. The RBS
Consortium’s offer was cash rich and looked more generous to the ABN shareholders than the equity-heavy offer from Barclays, which was lessened by the fall in its share price.
The shareholders struggled to choose between the larger offer from the RBS Consortium, which would split ABN,...
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