Dutch bank ABN AMRO on Wednesday urged shareholders to reject plans by a hedge fund to break-up or sell the company, as it pursues a merger with Britain's Barclays to create a bank worth over $175 billion.
ABN AMRO, the Netherlands' biggest bank, gave shareholders the green light to vote next month on proposals by hedge fund TCI, including a break-up, sale or merger, but talked up the benefits of a potential deal with Barclays.
"We do not believe the interests of our shareholders would be best served by the mere short-term cash generation actions embodied in the proposals that TCI has put forward for consideration," ABN said.
If Barclays, Britain's third biggest bank, seals a deal with ABN it would be the world's biggest ever bank takeover, creating a bank with a combined market value of over $175 billion with a foothold in markets including Asia, Latin America, Europe and the United States.
The Amsterdam-based bank said it would put the hedge fund's proposals to a vote at its April 26 shareholders meeting.
ABN and Barclays announced they were in exclusive talks earlier this month after ABN came under pressure from activist investors, including TCI, to consider a sale or break-up to boost shareholder return after years of underperformance.
"The Managing Board and the Supervisory Board believe that a merger with Barclays may provide the opportunity to create additional value and we are excited about the potential opportunities that a merger with Barclays could offer," ABN AMRO said in a statement, adding it was unclear whether talks would result in a merger proposal.
A month ago TCI, The Children's Investment Fund Management, requested that shareholders vote on five proposals: breaking up, selling or merging the bank's businesses; returning any proceeds to shareholders; selling the entire bank; to report back on the initiatives; and cease making any major acquisitions for six months.
A spokesman for TCI said the fund was reviewing ABN's statement and agenda for the meeting, but had no comment.
TCI's March 21 letter was followed by news of talks between Barclays and ABN, which are in exclusive discussions and have outlined a framework for a merger for a combined bank that would be listed in London, headquartered in Amsterdam and have its two top jobs split.
On Wednesday, Bob Diamond, head of Barclays' investment banking business and its president, said the British bank was in a "strong position" in the merger talks with ABN.
"If our discussions do not lead to a merger proposal, we will examine other sustainable alternatives including our standalone business case."
ABN, which is targeting growth outside of its mature market in the Netherlands, bought Italian bank Antonveneta last year.
The costs of integrating Antonveneta, and the struggle to extract profits from far-flung businesses in Brazil, North America and Asia, have weighed on ABN's share price. TCI had argued that ABN's share price lagged behind its peers.
But ABN's shares are up about 20 percent since TCI made its proposals, near lifetime highs.
Goldman Sachs estimates that Barclays would offer 35 euros per ABN share, including 5 euros in cash, "in order to seal the merger and reduce the potential for a counterbid." ABN shares were down 1.2% at 31.96 euros.
ABN says it is confident it will reach its target of 2007 earnings per share of 2.30 euros, excluding major gains, disposals or restructuring charges.