LONDON/AMSTERDAM – 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 rose 3.6 percent to end at 37.15 euros, while Barclays firmed 0.6 percent to 728.5 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 takeover tussle. "Now the ball is in Barclays' camp."
If ABN chose to switch its recommendation it is obliged to notify Barclays, which would have five days to respond, according to an SEC filing of their original deal.
ABN AMRO's board is set to meet later on Monday or on Tuesday, sources familiar with the matter said, adding the board is likely to discuss Monday's developments at the meeting.
The increase in cash offered by the consortium follows a Dutch court ruling on Friday which allows ABN to sell its U.S. 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 without LaSalle there is less opportunity to increase wholesale revenues in North America.
It now expects to deliver annual cost and revenue benefits of 1.8 billion euros by 2010, from just over 2 billion euros estimated before, excluding LaSalle.
RBS Chief Executive Fred Goodwin said the consortium never came close to scrapping the takeover 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 shares dipped 0.6 percent and Fortis fell 1.9 percent, but Santander shares rose 0.5 percent.
Even the Barclays offer, which is worth about 65 billion euros, would still rank as the largest ever banking takeover.
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.
ABN shares have jumped over 45 percent since a hedge fund investor urged the bank in February to break up or sell the bank, prompting its agreement with Barclays.