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Barclays President Tells CNBC: ABN Merger to Bring Efficiences

Reuters
Monday, 23 Apr 2007 | 3:39 PM ET
Flags of Barclays and ABN Amro outside ABN Amro's headquarters in Amsterdam, the Netherlands, Monday, April 23, 2007. Barclays PLC said it agreed to buy the Netherlands' ABN Amro Holding NV for 67 billion euro ($91.16 billion) in the largest ever takeover in banking history. As part of the deal, ABN will sell its U.S. unit LaSalle Bank to Bank of America Corp. for US$21 billion (15.45 billion euro) in cash. The merger will create a bank, headquartered in Amsterdam, with 47 million customers worl
Evert Elzinga
Flags of Barclays and ABN Amro outside ABN Amro's headquarters in Amsterdam, the Netherlands, Monday, April 23, 2007. Barclays PLC said it agreed to buy the Netherlands' ABN Amro Holding NV for 67 billion euro ($91.16 billion) in the largest ever takeover in banking history. As part of the deal, ABN will sell its U.S. unit LaSalle Bank to Bank of America Corp. for US$21 billion (15.45 billion euro) in cash. The merger will create a bank, headquartered in Amsterdam, with 47 million customers worl

Robert Diamond, president of Barclays Group, told CNBC Monday that most savings from the planned acquisition of Dutch bank ABN Amro will come from increased efficiencies-- not cost-cutting.

“If you look at the retail and commercial banking businesses, they’re complementary--there’s no overlap in terms of geography,” Diamond told CNBC’s “Power Lunch” from London. “The ABN side brings Brazil, Italy, Russia, Pakistan, India. Barclays brings South Africa, Spain, Portugal and the United Kingdom. The savings we get aren’t by getting rid of duplication. The savings come from getting more efficient.”

The British bank announced earlier in the day that it has agreed to buy its Dutch rival for about $91 billion, the biggest bank takeover in history.

Diamond said the deal wasn’t “size for size sake” and declined to say if Barclays would increase its offer if a competitor stepped in.

“We announced a merger,” he said. “It’s agreed. It’s a unanimous recommendation from both boards to the shareholders. I’m sure you’re going to hear some drama from others that would not like it to happen. As far as we’re concerned, we’re forging ahead.”

Barclays/ABN Amro Deal
Discussing Barclays acquisition of ABN Amro, the largest financial services deal ever, Robert Diamond, Barclays PLC president and CNBC's Erin Burnett

Diamond said the deal is “an acceleration of a strategy that we’ve had for five or six years.”

ABN managed to extract a high price for its shares, reflected in the 33% premium it gained since talks began a month ago, in part from the threat of a counter-offer from the Royal Bank of Scotland, backed by Spain's Santanderand Dutch-Belgian group Fortis.

"Best Option" for Holders

ABN Chairman Rijkman Groenink recommended the merger with Barclays as the "best option" for shareholders, but had scheduled plans to meet the three banks later on Monday. The RBS-led consortium were seeking a break-up of ABN in their bid.

The banks cancelled, saying they wanted more information on the parallel agreement for ABN to sell its Chicago-based U.S. bank LaSalle to Bank of America for $21 billion in cash. The merger with Barclays will be conditional on LaSalle's sale.

The Barclays-ABN combination would create the world's fifth biggest bank with a market value of over $190 billion and 47 million global customers.

The deal is widely seen as a test case for larger bank mergers in Europe's consolidating banking and financial sector and part of a wave of mega-bank mergers that began in the United States several years ago.

"If you're going to compete in the European or international market, you must be bigger," Barclays Chief Executive John Varley told reporters.

Barclays and ABN said a merger would result in 3.5 billion euros of annual savings, largely from cost cuts including 23,600 job reductions or just over 10% of the combined workforce. About half of those positions will move offshore.

Rival Bid Still Possible

"The strategy and ambition of ABN has been to build, not to break up," Varley said. "We strongly believe that the (consortium's) option cannot be compared on a strict financial basis with the deal being offered by Barclays."

Asked if he was willing to pay more in the face of a competing bid, Varley said: "We have put a good price to ABN shareholders."

Groenink did not rule out a rival bid: "That doesn't mean we don't listen to shareholders, if they think there is something else very serious and more compelling on the table."

Analysts and investors said the offer may be too low to secure a win or exclude another bidder who could extract greater cost savings.

"If financial terms are the major determinant of the outcome here then Royal Bank will win," said Simon Maughan, analyst at Blue Oak Capital. "What is pretty clear is that Barclays can't go much higher. They could sweeten it but I don't think they're minded to go much higher than this," he added.

Barclays shares were down Monday in London, cutting the value of the offer, as traders said hopes were fading it would itself become a takeover target. ABN shares rose in early trade but fell after the RBS-led group postponed its meeting.

The banks said they will distribute about 12 billion euros to shareholders through buybacks after the sale of LaSalle.

Management Structure

Varley and Diamond will have the same positions in the enlarged group and ABN's Arthur Martinez will be chairman. Groenink will become a non-executive director and Varley said he will move to Amsterdam.

The combined bank will be a registered company in the United Kingdom with headquarters in Amsterdam, and dual-listed on the London and Amsterdam stock exchanges. Barclays shareholders will own about 52% of the company, to be called Barclays Plc.

Barclays' current chairman, Marcus Agius, will become deputy chairman and take over the top job at Martinez's retirement.

ABN entered talks with a month ago Barclays after coming under pressure from investors, including British hedge fund TCI, to consider a sale or break-up to boost shareholder returns after several years of underperformance.

A plan for the Dutch central bank to be lead regulator has been dropped and Britain's Financial Services Authority is now favored for that role.

Three unions representing about 8,000 ABN employees said they would rather see Barclays succeed in its bid to buy ABN, with few job cuts expected from a merger compared with a rival bidder's deal.

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