FRIDAY 17th DECEMBER 1999: A "Cuddlier" Bid from RBS
The FT reports the Byers competition decision. RBS shares dipped to £11.06 yesterday, making the bid worth about £14 a share, around 10% (depending how you measure it) less than the BoS bid. But this is still an indication that the market thinks RBS are more likely to win and that BoS could then become a target themselves.
However, the FT reports, "some senior bankers believe NatWest's chances of surviving both bids have improved." Investors are starting to worry about the potential loss of customers following an unfriendly merger. The FT reports that the bid will cost RBS £248 million, more than the £187 cost for BoS. Fees and expenses are expected to be £126 million and the Government will receive a windfall through stamp duty of£121 million. In my paranoid moments, numbers such as these do make me wonder just who this bid is really benefiting.
It's another busy day for announcements and communication. We write to shareholders, covering the recent criticism of the BoS IT plans and their "U-Turn." We also highlight apparent changes of approach in terms of how they will reduce the property footprint, and what Gavin Masterton's role will be. He does seem to have become quite low profile in the whole affair. As a nice sarcastic final touch, the document criticises the jargon in the BoS proposals, such as the IT function being managed by "partnerships and rightsourcing." That is fair comment, but NatWest communications, internal and external, have never exactly been jargon-free zones either!
I get a chance to look at the RBS document. They have actually issued two. On is a 24-page summary with all the interesting stuff in it. The other has the same 24 pages, then another 80 odd pages containing all the formal offer stuff, appendices and so on. This looks like quite a neat idea, if expensive. The summary is a friendlier looking document than anything BoS or NW have yet produced. The cover has a nice picture of a row of happy shiny people, covering a range of ethnic origin, age and sex, although none of them look even vaguely working class or blue collar. Of course, Banks don’t want that sort of customer these days, cluttering up the branches with their pathetic cash deposits and ATM withdrawals of a tenner. Can't even afford a cash ISA, let alone a good pension policy or a high-commission endowment policy.....
The tone is more conciliatory than BoS; the Chairman's letter says that, although NW has not recommended the offer, RBS do not consider it to be "hostile to the board, management, staff or shareholders of NatWest." There is the same emphasis on cost reduction, but perhaps more focus than BoS on revenue growth and new opportunities. The new Group will have leading positions in key market sectors, and they play on their international connections, both Citizens, the owned US subsidiary, and the links they have with Banco Santander (BSCH) in Spain, and others. RBS see opportunities for revenue growth worth an additional £240 million in profit, as well as the same sort of £1 Billion per year cost savings that BoS are predicting.
Although the tone is friendlier, they talk about staff reduction of 18,000, which is actually greater than the BoS figure. This is becoming a bit of a battle of the redundancies; a fairly unpleasant form of management machismo, or a validation of a free market economy, depending how you feel. RBS claim they have a detailed implementation plan, and seem to have learnt from the fuss around the BoS IT plans. They categorise their own approach as low risk and will use their own existing technology platform for the new merged group. IBM have signed off that this platform is scaleable to handle the additional volumes.
RBS expect to dispose of Gartmore and Greenwich U.S. but will keep Ulster. I suspect a lot of us internally would support that decision. Ulster is a really good business and it would be a shame to see it go. As you would expect, they highlight an impressive record of growth and (genuine I think) innovation, in areas such as their tie-up with Tesco. Finally they talk about the benefits for customers and staff, two constituencies who have been perhaps slightly overlooked up to now in this process. They claim to have excellent staff relations and place much emphasis on communication and regular staff surveys.
All in all, it is an impressive document. The overall message is that they can deliver just as much as BoS in terms of savings, and more than NW can ever do, but they also offer a cuddlier approach to NatWest, with more exciting revenue growth opportunities and perhaps more real synergy between their operations and ours. Given there is little financially between the bids, it may come down to these less tangible aspects when the investors finally make their decisions.
We come back quickly today with an initial response to the RBS document, using past examples of US mergers to cast doubt on their claims. Quotes from these other examples, followed by the actual results (poor of course) post-merger are used to call into question the RBS predictions. We highlight the synergies and benefits expected and the "minimal disruption" to customers that is always claimed in such deals, but rarely achieved. Sir David talks about the huge risks inherent in bank takeovers; but it does not look as aggressive a response as we have been providing to the BoS approach.