RBS Must Now Justify ABN Amro Purchase - Bloomberg

Includes: ABN, FORSY, RBS
by: Judith Levy

The Royal Bank of Scotland, leader of a three-bank consortium that just bought Dutch bank ABN Amro, must now convince its shareholders that the €71.9 billion, 93%-cash pricetag was worth it. "They've got it, they wanted it, they paid a big price for it," said Colin Morton, a fund manager at Rensburg Sheppards. "The market will be looking over the next 12 to 18 months for them to deliver on the deal." RBS shares have lost 13% of their value since the consortium began its pursuit of ABN. The consortium beat out a €63.2 billion, mostly stock bid by Barclays, which withdrew from the race on October 5. To make the deal make sense, the consortium plans to cut 19,000 jobs and achieve €4.3 billion in savings and revenue gains by 2010. Some observers question the determination of RBS CEO Fred Goodwin to proceed with his pursuit of ABN even after ABN sold its U.S. asset, LaSalle Bank -- an asset RBS particularly desired -- to Bank of America. "It was a tricky deal to start with, and then they didn't get LaSalle and then came the liquidity crisis," said Mike Trippitt, an analyst at Oriel Securities Ltd. "Nobody would have been surprised if they had walked away." The consortium is paying triple ABN's book value in the biggest-ever takeover in the finance sector. "The Royal Bank-led offer is a very expensive transaction," said Robert Talbut of Royal London Asset Management. "The risk-reward doesn't add up."

Sources: Bloomberg
Commentary: ABN Amro Shareholders Expected to Approve Consortium Takeover On Friday - WSJRBS Consortium Doubles Stake in ABN AmroABN Amro Board Calls RBS Bid Superior, But Won't Back It
Stocks/ETFs to watch: RBSPY, FORSY, ABN. Competitors: HBC, DB, UBS. ETFs: RKH, KBE

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