Page 425 - The Case Lab Book

Goodwin, 49, would also have been well aware of the importance of cash in a
protracted bid battle such as that for ABN, given his experience in the NatWest fight.

WINNING the battle for Dutch bank ABN Amro has taken the better part of this year and it will
take another three for the synergies to start coming through, but don't bet against Sir Fred
Goodwin eyeing further prizes as he sets about his biggest task since acquiring NatWest.

He will transform the inefficient parts of ABN Amro now under his control and there are some
obvious targets, given that it has a whopping 82% cost-income ratio in its wholesale banking
operations, against just 53% at RBS.

RBS, responsible for around £16bn of the offer price, is likely to land ABN's operations in Asia
as well as most of its global corporate banking activities. The Scottish bank's share of the deal will be
about 16bn. This is its second-biggest acquisition ever, exceeded only by its £21bn purchase of National Westminster
in 2000.

Initially, RBS was to have taken control of LaSalle, ABN's retail banking operation in the United
States, but the law courts upheld ABN's earlier decision to sell LaSalle to Bank of America for
$21 billion (£10.5 billion). Of the ABN assets being bought, RBS's proportion is 20 per cent.

RBS insists that the fundamental benefits of the transaction are unchanged, despite the credit
crunch and market turmoil that has shaved 20% off RBS shares since March. Analysts say this
will be a testing time for shareholders, but RBS can turn it round. In a note published just ahead
of the verdict, Philip Richards at Execution Research noted the "seemingly stretched price paid
of 32 times historic earnings" and said: "The more pertinent question is now not so much
whether the consortium will win ABN, but whether their shareholders will actually benefit from
the acquisition.

Sir Fred Goodwin, the chief executive, must now persuade investors that the price paid was right,
and that the headache of unravelling ABN is justified by the cost savings and revenue benefits
they will achieve - which total some 1.8 billion, equivalent to nearly three times the current pre-
tax profits of the businesses it is acquiring.

However it is very difficult to argue that the banking trio is obtaining assets from ABN on the
cheap. Note that RBS's share price has fallen by 15% or so since the consortium said in the
spring that it wanted to buy ABN, while the consortium's largely cash offer for ABN was
actually nudged up.

For Royal Bank of Scotland it looks more of a challenge, especially as it is acquiring the business
most affected by the recent market turbulence

The 15% fall in RBS's share price may well be a proxy for the fall in the intrinsic value of ABN,
given what has happened to banking markets over the past couple of months.