Does the Barclays - ABN Deal Structure Snooker Other Bidders?

Implications: Barclays' (NYS:BCS) deal to buy ABN AMRO, conditioned on the sale of ABN's LaSalle Bank in the US, for 46 Billion Pounds (67 Billion Euros, $91 Billion) is on the table. The trio of Royal Bank of Scotland, Banco Santander and Fortis (TOR:FOR.TO) are circling ABN trying to figure out how to scotch this deal with a three way split of ABN's various businesses. Complicating this deal is the already announced sale of LaSalle Bank to Bank of America for $21 billion cash (10.5 Billion Pounds). LaSalle was coveted by RBS which would be combined with its Citizens Financial Group in the US. Banco Santander is interested in ABN's Latin American franchise and its Italian bank. Fortis would be after ABN's Dutch franchise.

Analysis: Structuring this deal to require the sale of LaSalle may well snooker the trio of RBS, Santander and Fortis and any other bidders for that matter.

1. By getting a cash price on LaSalle from a strong buyer like B of A, Barclays is assured of getting the parts of ABN that it wants at a fixed price and avoiding the US, where it has a poor operating history.

2. If another bidder steps up with more money for LaSalle, ABN shareholders benefit with no additional cost to Barclays. The current deal structure may force RBS to bid for LaSalle by itself.

3. Other bidders would have to top the Barclays' bid - which is easier said than done. Taking out costs is key to any bid's success. Another bid would likely have to take out more costs than Barclays - which is a tall order. This leaves ING  and perhaps HSBC as possible bidders. But, neither of these firms have paid over the top for their previous acquisitions which were much smaller than ABN.

4. Hostile takeovers in the banking industry are rare. While RBS was successful in a hostile takeover of NatWest, that skirmish was more narrow in scope than ABN's case and the price justification was based on the in-market efficiencies that RBS gained from the deal. ABN offers some in-market efficiencies for the trio, but a higher priced deal may leave each of the three banks wondering if they are overpaying for their piece of the ABN pie.