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News > International
NatWest target of $34B bid
September 24, 1999: 10:57 a.m. ET

Smaller Bank of Scotland springs hostile offer; NatWest shares soar
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LONDON (CNNfn) - Bank of Scotland on Friday launched an unsolicited 20.85 billion-pound ($34.20 billion) bid for National Westminster Bank, a financial powerhouse more than four times its size.
     The offer, criticized but not outright rejected by NatWest, prompted a flurry of deal talk that drove London bank stocks sharply higher.
     The Bank of Scotland bid, which values each NatWest (NWB) share at 1,250 pence, represents a 20 percent premium over the closing price of 1,046 pence Thursday.
     Under terms of the proposal, Bank of Scotland is offering 1.6 new shares and 1.20 pounds in nominal amounts of loan notes per NatWest share.
     Bank of Scotland (BSCT), a 300-year-old institution based in Edinburgh, said the deal is conditioned on NatWest not proceeding with its $17.2 billion takeover of insurance group Legal & General.
     NatWest, which said it learned of the bid only as it was being made Friday morning, reacted coolly to the offer. In a statement, the bank said the bid "does not reflect the value of the NatWest franchise and the NatWest Group as a whole."
     A further announcement was expected later Friday.
     NatWest shares have lagged the bank sector by roughly 20 percent for the past five years. But shares of the bank soared almost 32 percent Friday to 1,376 pence -- more than 10 percent above Bank of Scotland's per-share offering price -- as investors engaged in further bid speculation.
     Bank of Scotland stock advanced 7.15 percent to 750 pence, while two rivals seen as prospective third-party bidders also gained -- Barclays (BARC) up nearly 5 percent and Royal Bank of Scotland (RBOS) up almost 10 percent. However, shares of Lloyds (LLOY) were off 0.27 percent.
     A Bank of Scotland-NatWest marriage would be a major spur to British banking consolidation, still in its nascent stages.
     Combining NatWest's $297 billion in assets with Bank of Scotland's $60 billion asset-base would create a $357 billion giant, second only to HSBC in the United Kingdom, with $457 billion. Barclays would be in third position, with $353 billion.
     Bank of Scotland said Friday it didn't anticipate a takeover would result in significant job losses from NatWest's 64,000-strong work force, arguing it could achieve its targeted cost savings without unusual action.
     Bank of Scotland's chief executive officer, Peter Burt, refused to specify how many jobs could be lost in the event his bid is approved.

    
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     The offer elicited strong comments from analysts Friday, who described it variously as opportunistic, brash, and brazen.
     The last time such terms were applied so consistently to a European takeover effort was in May, when former Italian typewriter-maker Olivetti successfully broadsided Deutsche Telekom with a come-from-behind $65 billion bid for Telecom Italia.
     Analyst John Kirk of Fox-Pitt, Kelton, described Bank of Scotland's approach as "very opportunistic," and said a counter-bid in the region of 1,400 pence was "reasonably likely."
     David Liston, an analyst with Capel Cure Sharp in London, said that while the terms of the offer appeared attractive, he believed NatWest was unlikely to bite.
     "They won't want to be taken over by a much smaller bank," Liston said.
     Bank of Scotland has an estimated market capitalization of 8 billion to 9 billion pounds, while NatWest is worth about 21 billion pounds.
    
Initial talks collapsed last year

     Bank of Scotland said Friday it has been evaluating the benefits of a possible combination with NatWest for a considerable time. However, initial discussions between the two banks collapsed last year when they failed to come to an agreement.
     Bank of Scotland asserted Friday that NatWest's decision to pursue a merger with an insurer such as Legal & General -- rather than with another retail bank -- was a model "untested in the U.K." Legal & General shares dived 6.4 percent.
     "We continue to believe more value could be created for shareholders through a concerted effort to eliminate costs within the NatWest banking business," the Scottish bank said in a statement.
     Directly urging NatWest shareholders to vote against NatWest's acquisition of Legal & General, Bank of Scotland said: "The global trend of bank-to-bank mergers demonstrates the significant synergies realizable from such mergers."
     "Shareholders in NatWest should therefore vote down the Legal & General transaction in order to participate in these benefits and allow our offer to proceed," the bank added in a statement.
     In a pending case of a big bank seeking to link up with an insurer, Lloyds TSB has offered $11 billion for Scottish Widows.
     Liston said the pool of potential third-party bidders for NatWest would be narrowed by regulatory concerns. A bid from a large rival such as Barclays or Lloyds TSB would likely raise questions among regulators wary of giving too much control to a single British bank.
     In the long run, however, Liston views such offers as a prelude to a greater coalescing across the financial sector.
     "It's almost certain that the banking and life insurance sectors will link up in some form in the next five to 10 years," he said.
     Upon completion of a deal, NatWest shareholders would end up holding around 68 percent of the total issued share capital of Bank of Scotland.
     The deal would be expected to add to earnings in the first year. NatWest would remain as a separately authorized bank under the transaction, retaining its name and the goodwill attached to the NatWest brand.
     Bank of Scotland's primary argument in support of the deal boiled down to a repudiation of NatWest's pursuit of Legal & General and a strong assertion of its own prowess in managing assets.
     Over the past 10 years, the Bank of Scotland has shaved its cost-income ratio -- a popular measure of bank efficiency -- to 49 percent from 56 percent. NatWest's ratio, by contrast, has remained above 65 percent over the same period. Lower ratios imply greater efficiencies.
     At the same time, Bank of Scotland shareholders have reaped greater returns on their investment than their counterparts at NatWest. A 100-pound investment in Bank of Scotland on Jan. 1, 1989, would now be worth 1,515 pounds, versus only 745 pounds for the same investment in NatWest made on the same day.
     Kirk, at Fox-Pitt, noted that NatWest stock has been "hammered" recently, with the downturn especially acute following the Legal & General bid in early September.
     Before the stock shot up Friday, NatWest shares had been down 10 percent this year, and 33 percent from their year-high of 1,566 pence, reached April 19. As of Thursday, Bank of Scotland stock had risen 1.4 percent this year.
    
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Selling NatWest's non-core assets

     Bank of Scotland plans to dispose of NatWest's non-core assets after a tie-up. The businesses to be sold are expected to include Gartmore, Ulster Bank and Greenwich NatWest. The board of Bank of Scotland will return to shareholders any surplus capital arising from the sales.
     NatWest, one of the U.K.'s leading retail banks, serves more than 6 million customers, or about 16 percent of the British market.
     NatWest U.K., NatWest Group's main domestic financial services arm, also serves a lion's share of the U.K. business customer market, with 28 percent of mid-sized businesses and 26 percent of small businesses.
     Bank of Scotland provides retail and corporate banking services in Britain through about 320 retail branches and 23 corporate offices. The bank's Scottish network is comprised of 300 outlets.
     Bank of Scotland's bid comes on the heels of its decision to scrap plans to team up with U.S. tele-evangelist Pat Robertson in a direct-banking operation after Robertson called Scotland a dark land for tolerating homosexuals.Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.