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Today in ABN Amro

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Lots of action today in the battle for ABN Amro.
First a quick recap for those who haven’t been following the story in Joe Weisenthal’s Opening Bell. ABN Amro is the largest Dutch Bank but it has come under pressure from shareholders—particularly the Children’s Investment Fund, the huge British hedge fund—to sell itself after a period of lagging performance. The managers of ABN Amro opened up talks with Barclays, which offered a 100% equity deal worth 36.25 euros for the Dutch bank.
Despite the widespread impression that ABN Amro’s management want to close a deal with Barclays, there were rumors of rival bids from the start. Yesterday the Royal Bank of Scotland put in a competing bid for ABN Amro. The RBS offer is reportedly worth 72.2 billion euros, consisting of seventy-percent cash and thirty-percent RBS stock. RBS has partnered up with Fortis, a Belgian banking firm, and Banco Santander Central Hispano, Spain’s largest bank, in making its bid.
Although the RBS bid is significantly higher than the Barclays bid, it is running into trouble. First, they bid is subject to what the lawyers call a “diligence out”—meaning RBS could walk away from the deal if it discovers undisclosed liabilities when it examines ABN Amro’s book. Second, there are questions about how RBS will finance the acquisition—at close to $100 billion it is said to be the largest buyout ever in the financial sector.
The Financial Times' Lex column this morning wonders whether RBS can find financing for the deal. “A bid would require €50bn of financing, mostly equity – ABN is not a supermarket, which can be leveraged up with bridge financing. RBS and co will have to demonstrate they can come up with the cash in short order,” Lex writes.
And the Wall Street Journal’s Deal Journal raises questions about the very size of the deal. That $100 billion neighborhood might look rich, but look who else has lived there before: MCI WorldCom’s $114 billion for Sprint, and America Online’s purchase $165 billion deal with Time Warner. “Are you sure you want in?” Dennis Berman asks.
Perhaps most importantly, the RBS bid is contingent on ABN Amro keeping it’s American operation, LaSalle Bank. On Monday, ABN Amro agreed to sell LaSalle to Bank of America for $21 billion, a deal that DealBook notes is “widely seen as an attempt to discourage an approach by the Royal Bank of Scotland consortium.”
But now Barclays has run into trouble too, with Bloomberg reporting that the Securities and Exchange Commission has evidence that Barclays used insider knowledge gained from serving as a lender on bankruptcy panels to trade securities. Barclays is reportedly in settlement talks. Although not directly related to the deal for ABN Amro, anything that casts a shadow on Barclays is bound to make ABN shareholders at least think twice about trading their ABN shares for Barclays shares.
All this comes as both Barclays and ABN Amro are scheduled to have their annual shareholder meetings today. Stay tuned.
Battle for ABN Amro [Financial Times]
Life Inside the $100 Billion Club Ain’t So Grand [Deal Journal]
The Battle Is On for ABN Amro [Dealbook]

Barclays Probed by SEC Over Bankruptcy Conflicts