20TH DECEMBER 1999: RBS Shares on the Slide
I talk to Paul of Andersens about Richard's idea of sharing risk in developing new e-procurement systems. They may go a little way towards the idea, but are very wary (quite understandably) about accepting financial risk and not being able to control the outcome. For instance, if their reward is linked to bottom line savings, it will be NW purchasing people who must actually perform in order to deliver those savings and hence AC's payment. The new systems in themselves do not generate savings.
Andersens have produced a draft letter of commitment. Given the significant level of resource they are going to put into the next stage, they are now looking for some payment if we don't go ahead after that stage. We haven't agreed this, but I can understand their concern. They know NW and the key people very well, and they know about Richard's negativity towards Redgrave - and what a powerful position he is now in. They are also worried about what happens if the acquisition does go ahead. I talk to Bernard about this. "Andersen probably know I won't be here in six months," he tells me. That is the most open he has been with me, and I take it that he means this is independent of whether we win or lose.
We publish another attractive black and orange document (buy shares in our printers now!) responding to the RBS bid. This is a fairly punchy document, although we are now fighting on two fronts and have to make reference to the revised BoS offer as well as the main thrust against Royal Bank, which perhaps dilutes the overall effect. We restate the good stuff about our transformation, already underway, growth prospects, divestments and capital return. The RBS bid, in much the same way as the BoS counterpart, is characterised as offering inadequate value, inflated claims and integration risk.
The RBS share price has dropped by 20% since the bid, so their offer is only worth around £13.50, and the volatility may of course continue. We question the quality of their earnings; how much have profits benefited from venture capital gains and cyclical areas such as Direct Line insurance? The US is also playing an increasingly large role in their growth, which is not necessarily a bad thing, but carries some risk (particularly if you manage your US operations as NatWest did in the past!) We question the role of the Spaniards in part-funding the deal, although I would have thought this could be construed as a positive in terms of positioning for European integration.
The attack on the savings claims are similar to the points we have previously made with respect to BoS, as are the comments on integration risk, although we can't be as aggressive on the IT issues as their proposals look more solid. We hammer away again at the past evidence of mergers, using unsuccessful US examples to attack both the Scottish banks' plans and claims.
The diversion to defend against the revised BoS bid doesn't contain anything new, just a quick recap of the issues such as the IT and property debates, inflated benefits and risks. The final section restates "NatWest management is best placed to deliver value to NatWest shareholders." The value belongs to you (if you happen to be a shareholder) and no one else.