Barclays Bank (NYSE:BCS) is set to acquire ABN Amro (ABN). Large mergers are problematic at best of times. ABN Amro is in a weakened state and has become a takeover target with shareholder activists screaming for changes. This means that there is a lot to be fixed and the current ABN Amro management team could not convince the investing world that they had the right plan and vision.
Barclays is huge domestically in Britain and ABN Amro is huge internationally. On the face of it that appears to be a good fit. But one wonders whether Barclays, with its domestic smarts, has the savvy to fix problems on an international basis.
Merger logic is frequently driven by short term cost cutting opportunities, which do not exist in this instance. If anything as management creates a new consolidated entity they will have enormous IT spends to consolidate reporting, accounting and controls.
American bankers are coveting the Chicago based ABN LaSalle entity, recognizing that its acquisition will allow them to bulk up. Given that it’s such a good idea to buy, why would the new entity want to sell a valuable asset and help a competitor? Normally you try and sell the bad stuff!
The only way the LaSalle operation should be disposed of is in a trade for another asset that will enhance the new Barclays ABN Amro entity. So interested bankers will have to open up their kimonos and show some stuff. Maybe something that fixes an ABN Amro problem somewhere in the world would be worth talking about. Compare this to sports teams trading players. Maybe even a three-way trade?
Banks crave bulk and size. They will eagerly abandon short-term earnings as they reach for what they believe is long term strategic growth. The newly merged entity will have indigestion for about two to three years. Investors will need a very long-term horizon so that investor expectations may catch up with management perspectives.
BCS 1-yr chart
ABN 1-yr chart