British bank Barclays has no plans to walk away from the battle for ABN AMRO despite a growing gap between its bid and a competing offer, sources close to the matter said on Wednesday.
After a 14 percent drop in its share price in the past two months, the gap between the mostly share offer by Barclays and a largely cash bid from a consortium led by Royal Bank of Scotland has widened to over 11 billion euros ($15 billion).
To breach the gap -- and beat the RBS bid as it stands -- Barclays shares, now trading under 600 pence, would have to move back up towards the record high of 794 pence touched this spring, or the bank would have to sweeten its bid a second time -- a prospect analysts and shareholders say is unlikely.
Barclays declined to comment on its ABN plans on Wednesday, but its executives have consistently said it is too soon to rule on the outcome of the battle, with shareholders unlikely to tender shares until after a key ABN meeting next month.
What matters, in terms of the Barclays deal, is where our share price is in late September and early October, not in the dark days of August, Barclays President Bob Diamond said in a weekend interview with the Financial Times.
The bank would also be liable for a break fee of 200 million euros if it pulls out from the deal as it currently stands.
There would be no point in walking away at this point, one of the sources said. Shareholders will vote with their feet, but until then, the consortium still has hurdles to overcome.
KEEPING THE FAITH
Indeed, though ABN shares are trading above the Barclays' offer, they are still more than 4 euros below the RBS bid.
At midday on Wednesday -- less than a month ahead of ABN's Sept. 20 shareholder meeting and as investors prepare to tender their shares -- ABN was trading around 33.94 euros. That compares with Barclays' bid worth just under 32 euros per share at current prices and with the RBS offer at over 38 euros.
Analysts said ABN was being held back by concerns its earnings could be hit by recent credit market turbulence. The bank is, for example, a player in the European securitisation market, where liquidity has virtually dried up.
It is also being hit by worries that RBS, which could itself be hit by the turmoil, may be tempted to trim its offer. Sources close to the consortium -- which also includes Spain's Santander and Fortis -- denied similar talk last week.
The consortium still has two hurdles to overcome. One is g regulatory approval, which could come next month with strings attached, according to worries expressed by one source close to the consortium last week. Fortis, meanwhile, faces a hefty 13 billion euro capital hike in uncertain conditions.
The gap is there because of the two fear factors -- that there could be difficulty raising capital or that RBS could drop its offer -- though there is nothing to indicate they will, analyst James Hutson at Keefe, Bruyette & Woods said.
Some Barclays shareholders said on Wednesday that they would not oppose a retreat from the largest ever banking takeover, if market conditions do not change.
They are hoping for a miracle, said one Barclays shareholder who declined to be named.
I would be quite happy for them to recognise market conditions have changed and give up, rather than soldier on and wait for this miracle, he said.