Scottish bank’s planned £26bn takeover of NatWest
SCOTLAND’s two biggest banks are locked in a fight to the death for the multi-million pound takeover of the National Westminster Bank after it emerged last night that the Royal Bank of Scotland had entered talks with the beleaguered English clearer.
However, the talks broke down as the two banks failed to agree on a price acceptable to NatWest’s shareholders, according to City sources.
The collapse means that RBS will, almost certainly, pounce on NatWest with a hostile takeover bid early this week. This is widely expected to trump the Bank of Scotland’s revised offer which was issued last Friday. Some bankers believe that NatWest will now invite both institutions into its City of London headquarters to negotiate with them in tandem.
Whichever of the Scottish banks loses this battle is going to suffer a huge lose of face and prestige, with industry analysts predicting they will be more vulnerable to being taken over by a larger bank.
Last night, drama came as Sir George Mathewson, chief executive of Royal Bank of Scotland, had been pushing the larger UK institution, NatWest, to accept a “white knight” or friendly takeover offer as an alternative to the hostile bid first made by his rivals at Bank of Scotland three months ago.
Although Mathewson’s offer would have valued the group at around £26.7 billion, it is understood to have been rejected as “too stingy” by Sir David Rowland, NatWest’s executive chairman. Since both banks were unable to agree terms ahead of the takeover panel’s deadline of 11.59pm last night, a full-scale bidding war is now almost certain to erupt early this week.
City analysts and fund managers believe that the Royal Bank has the upper hand over its Edinburgh-based rival since it is capable of offering as much as £17 per share for NatWest. The Bank of Scotland would struggle to offer any more than £15 without jeopardising its business.
The Royal Bank of Scotland is likely to reinforce this more generous offer by claiming it will generate greater cost-savings than Bank of Scotland. While the Royal Bank of Scotland has 308 branches in England, Bank of Scotland has fewer than 30, which means there is greater scope for branch closures in the event of RBS taking over NatWest.
With the support of strategic partner, Spanish bank Banco Santander Central Hispano, RBS is in a position to offer a greater cash component to its bid.
Despite the collapse of the talks, Royal Bank of Scotland will also strive to present its bid for NatWest as a slightly friendlier approach than Bank of Scotland’s.
The smaller bank’s management has been giving NatWest a tongue-lashing since 24 September, causing relations between Bank of Scotland and NatWest have gone from bad to worse.
“The antagonism between Bank of Scotland and NatWest creates risks and institutional investors may feel more comfortable with a Royal Bank of Scotland solution,” said Keith Baird, an analyst at Enskilda Securities.
Having learnt from his failure to acquire Barclays earlier this year, Mathewson has until now kept his cards close to his chest. However, Peter Burt, Bank of Scotland’s chief executive, effectively put all his cards on the table when it raised its bid on Friday morning.
Analysts maintain that were Bank of Scotland to offer anything more it would be putting its future at risk by diluting earnings per share and destroying shareholder value.
Fund managers and analysts highlighted the 5.6% drop in Bank of Scotland’s share price to 724p after the announcement of its raised bid on Friday to illustrate that the bank’s shareholders have lost faith in its ability to raise the bid any higher.
“I think they’ve fired their final shot. It’s now all down to Royal Bank of Scotland,” said Mark Eady, banks analyst at Deutsche Bank.
“Bank of Scotland have gone as far as they can go and the strain is showing in their share price. There are no other shots in their locker,” said a fund manager with a large holding in NatWest. “If Royal Bank of Scotland bid, their chances of getting it versus the Bank of Scotland would be greater.”
The Royal Bank of Scotland’s announcement of its management succession on Friday has been widely interpreted as eliminating any doubts about a boardroom split at its St Andrew Square headquarters in Edinburgh.
Its chairman, Lord Younger, is believed to have earlier questioned the logic of making a counter-bid for NatWest, but has now effectively stepped aside to let Sir George Mathewson and his deputy Fred Goodwin do things their own way. “The PR hyperbole of that announcement definitely paves the way for a bid,” said one Edinburgh financier.
The Department of Trade and Industry’s decision to wave through the Bank of Scotland’s bid was also seen as reducing the risk of a Competition Commission inquiry into a RBS bid for NatWest.
Royal Bank of Scotland may also expect to benefit from goodwill generated by the “impressive” annual results it is expected to unveil in London on Thursday. Stephen Kirk, another banks analyst at Deutsche Bank, predicts RBS will unveil underlying pre-tax profits of £1,134 million versus £852m last time.
Members of the Scottish financial community were last night rallying to the Royal Bank of Scotland’s banner. “In my view the RBS has a good chance,” said Danny O’Neill, chief executive of Glasgow-based Britannia Asset Management. “In these situations the organisation that comes in second often wins.”
Catch up
One of Scotland’s leading financial institutions, Bank of Scotland, made a daring bid for the National Westminster Bank, which is twice its size, on Friday 24 September.
Now the rival Royal Bank has announced it has joined the battle. Yesterday it tried to agree a friendly merger but talks broke down.
Copyright SMG Sunday Newspapers Ltd 1999
This article about NatWest was the business splash in the Sunday Herald on 28 November 1999