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  • Writer's picturePeter Smith

THURSDAY 28TH OCTOBER 1999 - The Case for the Defence

I stayed in the Midlands last night in order to visit the Carwin print factory and warehouse facility in Southam, near Rugby. Carwin are one of the two suppliers who will pick up much of the work previously done at the SDC so I feel I should at least have seen their operation before we make the move. As soon as I get there, I am given an urgent message to call the SDC at Cheadle.

Apparently, when the number 2 for our operation arrived this morning at the warehouse around 8.30, he found a group of the warehouse guys standing outside with placards saying "SCAB" and similar. Oh my God, he thought, they've gone on strike! After a few moments of fairly deep concern, and the guys keeping up the act, he established that there is (for some reason) no power in the whole place. The early starters were therefore hanging round outside and thought the placards would be an amusing touch. You have to admire the sense of humour given the situation!

Having said that, we don't know what the problem is as yet. I have to get the London office to get the message around the company through the Intranet to tell people that they should not place orders for print and stationery today. It turns out later on that one of the utilities were digging something up and went through some major electricity cable. I didn't really think sabotage was likely, but having made 80 people redundant, I must admit it did cross my mind.

Back in the office later, I have a chance to see the defence document for the first time. Black cover, big NatWest logo, "Reject Bank of Scotland's Offer... "

That does indeed encapsulate the message within. Emphasis is placed on the new management team, and the fact that the transformation of NatWest is well underway. While that does still sound a little "jam tomorrow", particularly in the discussion of the Retail Bank change programme, there are new aspects to the strategy, such as the disposal of Ulster, Gartmore and Greenwich. This will enable us to concentrate on five core businesses; Retail, Corporate banking, Cards, Treasury (GFM), and Wealth Management, largely Coutts. Within these businesses we do genuinely have very strong customer franchises.

The BoS offer is characterised as offering unacceptable terms, with high risks and flawed proposals. The offer is at a negligible premium to the previous NatWest share price; the offer was opportunistic, and is based on Bank of Scotland shares (rather than cash), which could be vulnerable currency. Bank of Scotland has not cut costs; its earnings growth is revenue based, and they have little experience of corporate banking, treasury, private banking or cards. Could they handle NatWest? In addition, integrating banks is not easy, and their proposals for bringing the IT systems together are very risky.

Their savings claims are in some cases "hijacking" things we are already doing, such as removing processing from branches, or in some cases are plain wrong. "Installing professional procurement and outsourcing" is one of the "plain wrong" claims according to our document, with a few comments I have supplied about our situation, including the survey that put us second out of seventeen.

The overall merger benefits are unrealistic, and are way out of line with what has been achieved in other mergers such as Lloyds/TSB. "The offer means high risks and no reward for NatWest shareholders."

It looks to me like a pretty good document, certainly enough to reinforce or raise some doubts about their offer, and I can't personally think of anything else I would haves aid at this stage. But there is nothing in there which is in any sense a knock-out blow, and I wonder if it will convince the sceptics who remember the history of NatWest disappointments.

The FT Lex column hedges its bets. We are copying the BoS disposal plans, although this is sensible. Sir David is making the right noises, but investors will need more detail to be convinced and solve our "enduring credibility problem."

But while we have not demonstrated we deserve to stay independent, we are strengthening our position, and BoS could have a real fight on their hands. Press comment is generally mixed. We have undermined their credibility, but the Mail, Express and Telegraph are all critical or hostile, drawing attention to NatWest's track record of disappointments. The Times is much more positive. At the very least, it looks like we are making a decent fight of it, and I guess helping to push up the eventual shareholder return one way or another.

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