Barclays Raises Bid to Snatch ABN Deal With Asian Investors Signals Counter-Attack on Royal Alliance

By MARK SMITH DEPUTY BUSINESS EDITOR

BARCLAYS yesterday raised its bid for Dutch bank ABN Amro to euros-67.5bn (GBP45.3bn), after striking a deal with China Development Bank and a Singapore state investment vehicle to help finance a new cash offering in its attempt to beat Royal Bank of Scotland to the prize.

This latest wrinkle in the protracted and often convoluted tug of war for control of ABN turns the contest on its head, and again throws into doubt which bidderwill be the eventual winner in the world’s biggest bank takeover battle.

While the pendulum last week appeared to be swinging in favour of the Royal Bank-led consortium, it is now clear that Barclays will not roll over and die. It has launched what appears to be a serious counter-attack by selling up to 11per cent of itself to Asian interests to finance a 4.3per cent increased bid.

Barclays’ increased offer comes on the heels of the formal launch at the end of last week of the Royal Bankled consortium’s euros- 71bn bid for ABN, the bulk of which is now cash.

The Royal Bank’s own sweetened offer was yet another clear attempt to scupper ABN’s previously agreed all-share deal with Barclays.

ABN had agreed to Barclays’ original takeover months ago, but has since come under mounting pressure to switch support.

Royal Bank and its allies, Banco Santander Central Hispano, the largest bank in Spain, and Belgian-Dutch insurer and bank Fortis, are not only plotting a three-way split of ABN’s assets, but they are also keen to prevent Barclays from pulling off a big deal that would create the world’s fifth-biggest bank.

The tables may have now turned again.

While Barclays’ offer is still below the consortium’s offer, Barclays has persistently argued that its victory would mean growth and expansion for ABN Amro, instead of break-up under a Royal bank- led takeover.

A Royal Bank spokesman said: “The offer from the consortium is still the financially superior offer.”

Rijkman Groenink, ABN’s chief executive, told a Dutch newspaper over the weekend: “(The investers) only have one interest and that is the highest price.”

However, Groenink still regards the Barclays bid as more interesting. He added: “It is better in terms of substance, but not in terms of the amount.”

ABN Amro yesterday confirmed it had received the two revised offers from the rival bidders and said it would evaluate them both in ” a fair and transparent way.”

Barclays also for the first time introduced a cash sweetener to its offer, as it seeks to regain the upper hand.

The new offer is euros-42.7bn in shares and euros-24.8bn in cash, up from its previous all-shares offer of around euros-65bn.

Barclays shares yesterday rose 3per cent, or 21.5p, to 735p, galvanised by the investment of up to euros-13.4bn by state-owned China Development Bank and the powerful Singapore state investor Temasek.

Under yesterday’s agreement, an initial investment from the pair of euros-3.6bn will be used by Barclays to buy back shares during the takeover process, which analysts said would lend support to the bank’s offer.

The remainder of the investment from China and Singapore, almost euros-10bn, will be made if Barclays wins ABN.

Bruce Packard, an analyst at Pali International, said: “This finally explains why Barclays management have been so confident for so long, despite having a seemingly inferior offer on the table.”

However, one insider close to the negotiations, who asked not to be identified, remained unconvinced about Barclays’ latest move.

He said: “This could simply be a very elegant way for Barclays to walk away if it doesn’t get the deal, because they now have an interesting situation lined up in China.”

Under the deal, China Development Bankwill take a 3.1per cent stake in Barclays, potentially rising to 8per cent of an enlarged Barclays, while Temasekwill take a 2.1per cent stake in Barclays, potentially rising to just more than 3per cent.

Barclays’ chief executive, John Varley, said China Development Bank’s stake would be the biggest overseas investment by China and he was “entirely comfortable” with it becoming its biggest shareholder.

“I think it will be regarded as a very significant event in global markets, it’s by far the biggest external investment ever made by China, ” Varley said.

China Development Bank is one of the country’s three lenders driven by a strategy to support government policy.

Richard Hunter, head of UK Equities at Hargreaves Lansdown Stockbrokers, said: “The latest instalment in this major banking tug of war has yet again thrown into doubt the identity of the eventual winner.

Bob Diamond, Barclays’ president, said yesterday that he was optimistic ABN shareholders will back his bank’s offer when they vote in late August or September.

“This isn’t a bust-up strategy . . . if you look at the further opportunities the announcements today have on the share price and on the opportunity to look at profit potential down the road, it’s quite substantive, ” he said.

Meanwhile, this latest example of increasing Chinese assertiveness in global markets follows a government decision in March to drive up financial returns from an estimated dollars-1.2 trillion (GBP580bn) in foreign exchange reserves languishing in US Treasuries and bonds.

(c) 2007 Herald, The; Glasgow (UK). Provided by ProQuest Information and Learning. All rights Reserved.