Will Some Cash & New Allies Sweeten Barclays Chances to Win ABN?

Implications: Barclays raised the stakes on 7.23.07 when it announced they upped the anty by raising their bid from $91 billion to $93 billion, with 37% deriving from cash. Additionally, Barclays has found two new allies, one from China and the other from Singapore, who may help Barclays turn the Consortium on its head, although Barclays bid still falls short of the Consortium's bid of $98 billion with 93% of their bid in cash. If Barclays does win the bid, China Development Bank, who was advised by Blackstone on the Barclays investment, will make future investments in the deal and own a 7.7% stake in Barclays and become the largest shareholder. Temasek also made a sizeable investment in Barclays to support the bid for ABN and has vowed additional support if Barclays wins the bid. Not only does the infusion of cash help Barclays in its bid for ABN, it also helps Barclays with expansion plans for Asia, which Barclays plans to increase its Barclays Cap business in Asia by 20-30% annually.  

Analysis: Comments/Perspective:

Barclays looked to Asian investors for an infusion of cash and future investments to sweeten their offer for ABN with some cash and gained two formidable allies in China Development Bank and Temasek, Singapore's investment company. After the Consortium upped the anty last week and made an official offer for ABN, pressure was put on Varley to up the stakes or concede. In what has shaped up into a strategic chess game, alot is up for grabs and at stake for Barclays and the RBS Consortium.

1.  Barclays received some more good news late last week from the University of Amsterdam, who has pledged to sponsor $27.65 million to assist Barclays in gaining support for its bid for ABN. Why brings us to the question of why is ABN supporting the Barclays bid which is inferior to the Consortium's bid? This is really the crust of the battle which started at the beginning of the bid process.  ABN's Board favors a merger with Barclays to create the world's fifth largest bank, rather than what the Consortium is proposing to breakup ABN and sell it off. However, VEB the activist shareholder group wants to breakup ABN and sell it off and has filed suit in NY accusing ABN of breaching its fiduciary responsibilities

2.  Its now time for the Consortium's next move. All parties were given an extension of August 6th to file their official bids for ABN, which also coincides with Fortis's shareholder vote on its portion of the bid for ABN and whether they can raise the additional $28 billion pledged. This will be the first litmus test of how mighty the Consortium is with their shareholders and whether they can raise the remaining $77 billion to finance their bid and whether or not all parties will receive shareholder approval. Its difficult to determine if the Consortium will receive shareholder approval with the recent developments this week, however, top shareholders from RBS and Barclays may become key players in determining which bid to accept and force one of the banks to concede to end the bidding war 

Barclays may be pleased with itself right now but there is still much work to be done and most importantly is convincing ABN's shareholders and its own that its new allies can bring far more shareholder value to the table in the long term than the immediate short-term value the Consortium is proposing.