Buyer Consortium Wins Control of ABN Amro

Essay

Buyer Consortium Wins Control of ABN Amro

The biggest banking deal on record was announced on October 9, 2007, resulting in the dismemberment of one of Europe's largest and oldest financial services firms, ABN Amro (ABN). A buyer consortium consisting of The Royal Bank of Scotland (RBS), Spain's Banco Santander (Santander), and Belgium's Fortis Bank (Fortis) won control of ABN, the largest bank in the Netherlands, in a buyout valued at $101 billion.
European banks had been under pressure to grow through acquisitions and compete with larger American rivals to avoid becoming takeover targets themselves. ABN had been viewed for years as a target because of its relatively low share price. However, rival banks were deterred by its diverse mixture of businesses, which was unattractive to any single buyer. Under pressure from shareholders, ABN announced that it had agreed, on April 23, 2007, to be acquired by Barclay's Bank of London for $85 billion in stock. The RBS-led group countered with a $99 billion bid consisting mostly of cash. In response, Barclay's upped its bid by 6 percent with the help of state-backed investors from China and Singapore. ABN's management favored the Barclay bid because Barclay had pledged to keep ABN intact and its headquarters in the Netherlands. However, a declining stock market soon made Barclay's mostly stock offer unattractive.
While the size of the transaction was noteworthy, the deal is especially remarkable in that the consortium had agreed prior to the purchase to split up ABN among the three participants. The mechanism used for acquiring the bank represented an unusual means of completing big transactions amidst the subprime-mortgage-induced turmoil in the global credit markets at the time. The members of the consortium were able to select the ABN assets they found most attractive. The consortium agreed in advance of the acquisition that Santander would receive ABN's Brazilian and Italian units; Fortis would obtain the Dutch bank's consumer lending business, asset management, and private banking operations, and RBS would own the Asian and investment banking units. Merrill Lynch served as the sole investment advisor for the group's participants. Caught up in the global capital market meltdown, Fortis was forced to sell the ABN Amro assets it had acquired to its Dutch competitor ING in October 2008.
-In your judgment, what are likely to be some of the major challenges in assembling a buyer consortium to acquire and subsequently dismember a target firm such as ABN Amro? In what way do you thing the use of a single investment advisor might have addressed some of these issues?