RBS- takeover by ABN AMRO
Consortium bid by 3 banks: Fortis NV, Banco Santander, and Royal Bank of Scotland
Contested bid for several months (April 2007 – October 2007) with Barclays
Lasalle of Chicago used as poison pill/crown jewel defense mechanism to ward off the hostile, cross border bid
Consortium eventually won bid against Barclays but there were elements of risk involved, including excessive focus on profit growth and enlarging shareholder value through reckless, prolonged M&A activity under George Mathewson and his predecessor Fred Goodwin from the late 1990s through October 2008, when the bank was taken into conservatorship by the British government. Fortis was fully nationalized as a consequence of the deal.
Bid breakdown:
EUR 35.60 in cash (risky short term funding, eroding RBS’s common tier 1 equity position) and .296 RBS shares valued at EUR 71.1 B, excluding the sale of Lasalle. Net of the sale of Lasalle, RBS’s consideration was ~16 billion.
Complex structure of consortium (RFS Holdings) may have masked risks and contributed to investor skittishness and erosion of confidence. This, combined with RBS’s role as lead consortium partner led to it absorbing the downside liquidity and credit risks associated with enormous write downs on ABN AMRO’s toxic assets.
Timing of deal highly problematic. Deal occurred in the aftermath of the Northern Rock bank run and just as the global financial crisis, perpetuated by mortgage trading in US subprime investments, began to reach the British retail banking high street. The nature of the subprime crisis was that almost no banks were immune.