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RBS bids $42B for NatWest
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November 29, 1999: 6:36 p.m. ET
Unsolicited offer for U.K. bank outbids Bank of Scotland
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LONDON (CNNfn) - Royal Bank of Scotland launched a takeover offer for National Westminster Bank Monday, valuing Britain’s third-largest bank at 26.5 billion pounds ($42.5 billion).
Royal Bank of Scotland’s offer came after marathon talks with NatWest’s board over the weekend failed to produce agreement. RBS termed its approach "unsolicited”, and said it was open to further talks with NatWest management.
The offer trumps a hostile approach from RBS’s domestic rival, Bank of Scotland, which is worth 25.6 billion pounds.
RBS is offering 0.968 of its shares plus a 3.05 pound loan note for every NatWest share, valuing the stock at 1,590 pence, and the bank at 26.5 billion. RBS shareholders would hold 37.8 percent of the new company, while NatWest shareholders would hold 62.2 percent. RBS is less than half the size of NatWest.
NatWest issued a formal rejection of Bank of Scotland’s offer over the weekend. Early Monday the beleaguered bank said it could not recommend RBS’s offer to shareholders, although it did not outline its reasons.
"This is a very strong offer,” said analyst Andrew Hobson of Capel Cure Sharp. "Bank of Scotland will be very pushed to respond, and this is in the ballpark for NatWest to throw in the towel. We’re in the final stages now.”
Reuters reported that NatWest investors were not very excited by the offer because RBS had to go straight to shareholders, and the large stock component to the offer.
"Nobody can get very excited....the more they pay in paper the lower their share price goes,” NatWest shareholder Alan Beaney, a fund manager at Guinness Flight, told Reuters.
RBS has secured backing for its takeover plans from Spain’s Banco Santander Central Hispano, which owns a 10 percent stake in the Scottish bank.
RBS said in a statement that a combination of the two banks would result in annual cost savings of 1.18 billion pounds in addition to extra profits of 240 million pounds from revenue enhancements. Some 18,000 job cuts will form a large part of the cost savings. RBS has not accounted for any cost savings from the 200 branch closures unveiled as part of NatWest’s defense against BoS.
The combined company would have assets of $429 billion, placing it second among U.K.-listed banks. HSBC is no.1 with $475.5 billion.
RBS’s plan differs from its rival’s in that it plans to keep Ulster Bank, the retail arm in Northern Ireland, and part of the Greenwich NatWest investment-banking unit. BoS plans to sell those units, as well as the Gartmore mutual fund business, which RBS also wishes to divest, and hand back the proceeds to shareholders in the form of a special dividend.
RBS, despite having offered more money, does face regulatory hurdles to its bid. The U.K. government will have to assess whether the deal would break antitrust rules, whereas the competition watchdog cleared BoS’s offer on Thursday.
As part of its new strategy, RBS announced Monday it will combine its life-insurance activities with U.K. insurer CGU to offer a wider variety of financial-services products. Reuters also reported that RBS officials were saying the deal would add to earnings per share.
Still, by the close of trading in London Monday, RBS tumbled 6.6 percent to 1,241 pence, the worst performance of the three banks. NatWest stock was off 4.9 percent to 1,444 pence, BoS gained 0.6 percent to 729 pence. 
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