Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Royal Bank Makes NatWest Bid




LONDON -- Royal Bank of Scotland on Monday launched an unsolicited pounds 26.5 billion ($42.5 billion) bid for National Westminster Bank PLC, countering a raised offer from Bank of Scotland unveiled Friday.


Royal Bank, which is offering 0.968 new Royal Bank shares for each NatWest share plus a 305 pence ($4.95) loan note, had attempted a friendly approach but was rebuffed at the weekend.


The offer, worth pounds 15.90 a share, tops the hostile bid for NatWest already on the table from its Edinburgh-based rival, which has offered pounds 14.57, excluding a planned special dividend worth pounds 1.20.


Royal Bank's bid is at a 4.7 percent premium to NatWest's closing share price on Friday of pounds 15.18.


Royal Bank said its 9.6 percent shareholder, Spain's Banco Santander Central Hispano, would subscribe for pounds 1.2 billion worth of Royal Bank shares at market prices in support of the bid.


Royal Bank believes it can achieve hefty cost savings by merging their two British banking networks.


"Our proposed combination of NatWest with RBS is a unique opportunity to produce a new force in banking ... with substantial cost savings and revenue opportunities," Royal Bank chairman Viscount Younger said.


NatWest shareholders would hold 62.2 percent of the new group under the Royal Bank proposal, compared to the 75 percent under the Bank of Scotland plan.


It said it expected to find savings of pounds 600 million by removing overlaps and efficiency cost savings of pounds 580 million, giving total expected cost savings of pounds 1.18 billion.


This compares with the pounds 1.015 billion that Bank of Scotland is predicting and the pounds 525 million that NatWest itself has predicted.


Royal Bank's loan note element is higher than Bank of Scotland's 190 pence, which along with the higher cost savings, mean it is seen more likely to succeed.


Most analysts believe Bank of Scotland cannot increase its bid much more without destroying shareholder value.


Royal Bank also forecast a profit enhancement of pounds 240 million from initial revenue benefits, while neither Bank of Scotland or NatWest have released a revenue enhancement forecast. However, Royal Bank is at a disadvantage in that the government is still considering whether its bid should be referred to the Competition Commission while Bank of Scotland's was cleared last week.


The weekend saw last-minute efforts between Royal Bank of Scotland and NatWest to broker a friendly merger. On Saturday morning, George Mathewson and Fred Goodwin, the Royal Bank of Scotland's chief executive and chief operating officer, respectively, flew to London from Edinburgh to meet with NatWest chairman Sir David Rowland.


Hoping to trump the Bank of Scotland's $41.3 billion bid, Royal Bank offered the equivalent of $41.71 billion.


But after much back and forth, Rowland dismissed the offer as too low, executives close to the talks said.


In a news conference Sunday afternoon, Rowland acknowledged the talks.


"We concluded that the proposal as put forward did not warrant a recommendation from the board, and so we rejected the offer," he said. "That's all I can say at this stage."