Source: www.nytimes.com
LONDON, March 23 In the snow-covered mountains of Davos, Switzerland, top executives of Barclays, the British bank, and ABN Amro, a Dutch rival, ran into each other at the World Economic Forum in January.
Among other things, they shared their sense of intrigue at the
possibility of working together to create a global banking group that
might rival HSBC Holdings.
With growth limited at home, particularly as regulators move to block
local takeovers, numerous large European banks are finding that buying
rivals abroad can be a more viable route to expansion.
But as with previous such discussions between ABN and Barclays over the
last two years, nothing happened. Then along came the Children�s
Investment Fund, a London hedge fund that is known for building up a
sizable stake in an underperforming company to put pressure on
management to turn around its performance. Now Barclays and ABN are on
the verge of a deal.
Even if Barclays and ABN fail to combine, the talks may help start
a round of cross-border banking mergers in Europe, fund managers said.
�There
are still too many banks in Europe,� said Jan-Willem Nijkamp, a fund
manager at Tielkemeijer & Partners in Rotterdam and an investor in
ABN Amro. �There are still a lot of banks out there that are too small
to play with the big guys but too big to fit into a market niche.�
Recent
activism by certain hedge funds has raised hopes among a broader base
of investors that shareholder activism could light a fire under
European executives who have failed to increase shareholder value
significantly even in the current bull market. Talks between Barclays
and ABN are already prompting scrutiny of other possibly undervalued
and weakly managed banks.
The Children�s Investment Fund,
referred to as T.C.I., was set up by Christopher Hohn in 2003 and
currently owns about 1 percent of ABN Amro. In February, it told ABN
management that it was highly dissatisfied with lackluster growth and
wanted ABN to either sell assets or merge, according to a T.C.I.
statement.
Within days, ABN got in touch with Barclays�
executives, who agreed to talk on the condition that ABN not enter into
discussions with anyone else for about a month, so that a Barclays team
could examine ABN�s books and determine a possible value.
ABN
shares gained 17 percent in the four days after the banks announced
merger talks. Banking merger analysts said an offer from Barclays could
put the value of ABN as high as $88 billion.
�ABN has turned from
being one of the worst performers in my portfolio over the last couple
of years into one of the better ones,� said Marc van de Weijenberg, a
fund manager at SNS Asset Management in the Netherlands, which holds
ABN shares worth about 10 million euros ($13 billion). �It seems like
T.C.I. was the trigger at the end and speeded up things. I am quite
happy.�
T.C.I. also pushed Deutsche B�rse to oust two top executives and abandon its bid for the London Stock Exchange three years ago. This time, it did not want to wait for the annual general meeting in April to voice discontent.
Instead
it sent a letter to Rijkman W. J. Groenink, ABN�s chief executive, and
others on the board and made sure the media got a copy of it.
�With
a track record like that, people will watch out for what T.C.I. will do
next,� said Vasco Moreno, head of European banks research at Keefe,
Bruyette & Woods in London. But he argued that ABN was rather an
exception than the rule.
�ABN is a special case,� Mr. Moreno
said. �It is not easy to find a bank that is as undervalued as ABN and
has been for such a long time.�
Mr. Moreno said other banks
could benefit from breakups and revampings, and other analysts said
there were other potential takeover targets in Europe, including the ING Group, the largest Dutch financial services company; the Lloyds TSB Group, a British bank that ranks behind Barclays; HBOS, Britain�s biggest mortgage lender; Allianz SE, Europe�s biggest insurer; and Cr�dit Agricole, France�s biggest bank by assets.
Research
analysts at JPMorgan Chase told many hedge fund clients in a recent
16-page report that Munich Re, a German reinsurer, could increase its
share price by 60 percent by selling some assets. It explained in
detail which units the management should spin off.
Numerous
cross-border mergers have already formed in Europe, with waves
sometimes prompted by high-profile combinations. When Banco Santander,
Spain�s largest bank, bought Abbey National,
a British rival, for about $15 billion in 2004, it set off a small wave
of jitters at other banks. It put them under pressure to come up with
their own takeover plans or risk becoming prey to larger rivals and
American banks that already have a European presence, like Citigroup.
Some did succeed. Last year, BNP Paribas,
a French bank that analysts said might be a takeover target for the
likes of Banco Bilbao, bought BNL of Italy for $11 billion. UniCredit,
Italy�s biggest bank, also bought the HVB Group of Germany last year.
And shares of Commerzbank, the German bank, rose last year on
speculation that it might be a takeover target for Soci�t� G�n�rale of
France or UniCredit.
European banks whose share prices have
increased lately because of takeover speculation include Capitalia, a
large Italian bank, and Lloyds, based in London.
But even as a
wide range of potential takeover targets and willing suitors are
available to pick and choose from, executives have so far balked at the
complexity and size of many such deals.
