ABN-Barclays $80 Billion Deal May Be In Jeopardy With A DOJ Probe & Counterbid

Implications: Key Implications:

With a 30-day exclusivity deal between Barclays Plc and ABN Amro, the deadline is fast approaching on April 18, 2007, and a DOJ (Department of Justice) investigation and a possible counterbid(s) in the works, the $80 billion ABN-Barclays deal may be in jeopardy of falling apart.  Barclays wants ABN to settle any allegations of improprieties and possible fines with the DOJ before the acquisition is inked with ABN.

1.  The DOJ investigation may involve past money transfers violations and its not the first time that ABN has been in hot water with the DOJ.  The DOJ's investigation may be a deal breaker if ABN isn't able to settle potential allegations of violations expeditiously, because an important aspect of the ABN-Barclays deal is Barclay's acquiring ABN's U.S. operations and market share, which Barclays doesn't want associated with a DOJ investigation that may lead to fines, penalties and tarnishing of the bank's brand

2.  Over the weekend Dutch regulators lamented that they would not be against a counterbid that may result in ABN being broken up and sold off, which is what investors have proposed at shareholder meetings, and led to ABN entertaining offers which would keep ABN in tact, such as the Barclays deal.  Some shareholders believe ABN is undervalued and would provide a greater return for shareholders if broken up and sold off



Analysis: Comments/Perspective:

The ABN-Barclays deal has been touted as the largest European financial services takeover should the deal go through.  However, two recent events have surfaced that may sink the ABN-Barclays deal.  The U.S. DOJ (Department of Justice) has begun an investigation of ABN's operations to determine if any improprieties have occurred and a counterbid by rivals RBS (Royal bank of Scotland) and Santander (the hispanic bank), may be in the works and ING is watching the deal closely and may make a rival bid for ABN too. 

1.  RBS & Santander are long time allies and may be hinting at a counterbid to compel Barclays to sell the retail business (LaSalle) and since Barclays has no retail business in the U.S., Barclay's would be left with ABN's wholesale and asset management business in the U.S.  However, because the ABN-Barclays deal is considered a "merger," the sale of LaSalle would need approval by ABN's management, which wants to keep ABN in tact

2.  Another caveat to a possible counterbid is that Barclays and RBS shareholders overlap and if a bidding war ensues between the two mega banks, it may result in the winner overpaying for ABN, which may be counter productive to shareholders.  If Barclays can fend off RBS with the LaSalle business, it would remove a major threat to the ABN-Barclays deal

3.  The question remains though if the ABN-Barclays proposed merger will suffer the same fate as the Intuit-ECHO deal that collapsed as a result of a DOJ investigation into ECHO's online gambling transactions processing