Barclays To Acquire ABN Amro For $91B

Barclays PLC said Monday it will acquire ABN Amro NV for $91.16 billion in the largest takeover in the financial services sector, aiming to create a global banking giant and pre-empt a rival bid to break up the Netherlands' largest bank.

As part of the deal, ABN announced it is selling its U.S. unit LaSalle Bank to Bank of America Corp. for $21 billion in cash.

The proposed chief executive of the new group, Barclays CEO John Varley, called the deal "the largest merger ever in global financial industry," and said it holds out the promise of growth at a rate twice as fast as global gross domestic product.

Despite the agreement, ABN said it would welcome a meeting with representatives from Royal Bank of Scotland PLC, Spain's Banco Santander Central Hispano SA and Belgian-Dutch bank Fortis NV, which invited ABN to enter talks earlier this month.

But the consortium called off the meeting at the last minute, and said it wanted to hear from ABN Amro by the end of the day under what conditions it would consider scuttling the planned sale of LaSalle.

The consortium intended to split up ABN and sell off parts of its operations to each, but the breakup held less interest with the divestiture of ABN Amro's large U.S. operations.

"They still have time to come with an alternative proposal," said Ton Geitman of Petercam Financial Intelligence in Amsterdam. But unless they could block the sale of LaSalle, the three consortium partners would have to renegotiate among themselves how to split up the Dutch bank, he said.

"ABN Amro considers itself to have four home markets: Holland, the U.S., Italy and Brazil. Barclay's offer spinning off LaSalle to Bank of America makes some sense," said Bart Narter, a senior analyst Celent, a U.S.-based international financial research and consulting firm. The consortium may see itself better positioned to handle the non-U.S. markets, he said.

"The Dutch government may prefer to see the remainder of the bank intact and run from Holland, which could tip the scales," Narter said.

When completed, Barclay's acquisition of ABN Amro would create one of the top five global banks by market capitalization.

Under the deal announced Monday, Barclays offered $49.25 for each ABN share, slightly below Friday's closing price. Varley said the deal was worth $91.16 billion, a 33 percent premium from ABN's share price when talks began last month.

ABN Amro shares rose 1 percent to $49.88. Barclays shares fell 2 percent to $14.70.

"The proposed merger of ABN Amro and Barclays will create a strong and competitive combination for its clients with superior products and extensive distribution," the banks said in a statement. "The merged group is expected to generate significant and sustained future incremental earnings growth for shareholders."

For each share, ABN Amro shareholders will be offered 3.225 ordinary shares in the new group, to be called Barclays PLC. The companies said the deal would create a single bank with 47 million customers worldwide.

The new group will be based in Amsterdam — seen as a negotiating concession to the Dutch — and Varley said he would base himself in the Dutch capital. But the group said it would remain a British "tax resident."

Dutch Finance Minister Wouter Bos, who must approve the deal, said the merger "would fit in the consolidation that is expected to take place within the European banking sector."

The group said it expected to see 3.5 billion euros ($4.8 billion) in annual cost savings by 2010. Some 12,800 jobs will be trimmed from the combined work force of 217,000, and 10,800 others would migrate to cheaper locations, the banks said.

Both banks said they would recommend the deal to their shareholders, and ABN Amro was due to hold a shareholder meeting this week. The merger was expected to be completed during the fourth quarter of this year, the banks said.

Varley said shareholders faced a stark choice: To either deconstruct ABN by opting for the competing consortium's bid, or to form one of the world's largest banks by accepting Barclays takeover.

Executives refused to speculate on what would happen if the consortium offered a higher bid.

The Children's Investment Fund, a hedge fund that owns a 2 percent stake in ABN and which had pushed for the bank's breakup to improve shareholder earnings, said it was studying the proposed deal.

Varley said the combined power of ABN Amro and Barclays would provide a solid platform for expansion.

"This is the start, not the end. We are assembling a group uniquely qualified to compete for business all around the world," he said. He singled out Asia as one area for growth.

Alongside proposed chief executive Varley, Bob Diamond — head of investment banking at Barclays — will be president. The new board will initially consist of 10 members from Barclays and nine members from ABN Amro. Arthur Martinez, chairman of ABN Amro's supervisory board, will be nominated as chairman.

Rijkman Groenink, ABN Amro's CEO for the last seven years, said he would not accept an executive role. Groenink presided over the bank during a period when major shareholders criticized its share performance. Groenink said he would move to a non-executive directorship position.

The deal must be approved by financial regulators, but the banks have been consulting with the regulators during the negotiating process.