Is is the end of the road for Barclays?
More bad news for Barclays in its proposed friendly merger with ABN Amro? Not only has RBS intervened with its alliance partners to spoil the proposed merger but it now seems Atticus Capital, a hedge fund with a holding of Barclays shares, has suggested it should abort its all share €65bn bid, citing harm to its growth prospects.
Putting aside Atticus's presumably altruistic advice to Barclays management, there are only three fundamentals against which to measure the prospective suitors for ABN Amro.
- Is there a strategic rationale for the deal?
- Can the price be realistically justified?
- Will the proposal get implement?
On the first measure Barclays may protest that it does not need the deal with ABN Amro, however there are not many weak, Europe based banking franchises of ABN's size that will project the combined business into the premier bank league. On this measure Barclays, having declared its hand, may be pressed to do the deal or be at risk of takeover itself.
If forced into a bidding war should Barclays up the price to secure a deal? Only if they can convince the market that they can deliver the merger benefits that justify the premium, but can they?
Three things determine the likelihood of creating value from merger integration:
- Relatedness - on this measure the RBS consortium would seem to hold the upper hand
- Integration Strategy - ABN Amro would be acquired, broken up and the parts integrated by the RBS consortium, which would indicate a a greater likelihood that value will be created. The extent of resource replacement, another key feature of success, can not yet be judged but may favour Barclays, given the trend in mergers over acquisitions.
- Learning - both recent experience with similar transactions and codification of lessons leaned would seems to play into the hands of the RBS Consortium over Barclays, who's most recent experience of integrating the Woolwich Building Society was not a huge success, by their own admission.
A key differentiator in this battle will undoubtedly be the quality and robustness of the 'blueprint' for the combined business and the post deal integration plan and business case.
In any event however, it may come down to a question of asking the market to forgo short term profit gains for longer term value creation!....what's your money on?
We await the outcome of the battle with interest with the thought that whoever is successful the real and painful challenge of integration delivery lurks on the horizon.