RBS will promise to expand NatWest

BANK WARS The battle for the high-street clearer enters a new phase as RBS breaks cover with counterbid

ROYAL BANK of Scotland is expected to call for a halt to National Westminster Bank's sell-off programme and push for a greater focus on customers when it launches its pounds 26bn bid for the English clearing bank today. RBS is likely to want to keep Ulster Bank, one of the operations NatWest is closest to selling, and possibly Gartmore, the fund management operation. It is less concerned about hanging on to Greenwich NatWest, the stand-alone debt markets operation.

The decision to go public with its terms follows an abortive attempt to secure an agreed deal with NatWest behind closed doors at the weekend. NatWest has been publicly fighting a pounds 22bn hostile bid by Bank of Scotland (BoS).

The RBS bid is likely to be at around the pounds 16 a share level it offered at the weekend, which was rejected by the NatWest board. That offer was made up of one RBS share and 250p cash underwritten by BSCH, the Spanish banking giant which owns 9.6 per cent of RBS.

RBS is likely to stress that, even though it is making the offer public without first securing a board recommendation, it should not be considered hostile.

The offer will be based on a platform of trying to grow NatWest as a major player on the European stage rather than shrinking the bank, as both Bank of Scotland and the NatWest defence team are proposing to do.

RBS's public intervention means that the formal takeover bid timetable, which had been due to end on 18 December, now goes back to day one, raising the prospect of NatWest's fate remaining undecided until well into February.

However, RBS is clearly hoping to press the NatWest board into agreeing a deal well before then. The offer from Sir George Mathewson, RBS chief executive, came late on Friday. Sir David Rowland, the NatWest chairman, who had been expecting the development for much of the day after BoS raised the stakes with a higher pounds 15.75 bid.

However, following a series of face-to-face discussions conducted in London with Fred Goodwin, RBS deputy chief executive, who flew down with Sir George from Edinburgh on Friday night, the board decided on Saturday to reject the offer. NatWest's defence document recommending further jobs cuts and a pounds 1bn share buyback was made public minutes before the takeover panel deadline of midnight on Saturday.

Sir David yesterday confirmed the talks with RBS and that the offer had been rejected. However, he left a clear impression that he had all but given up the fight to stay independent, and that the issue was now about exacting the best price for NatWest shareholders.

It is understood that a key issue for the NatWest board was the fact that a substantial element of the RBS offer was in shares.

"They put a proposal to us. The board considered that proposal and decided that they did not offer enough to justify a board recommendation," Sir David said. "Hostility is not an issue. All we are concerned about is value for shareholders."

The board were advised that if they agreed a bid on that basis they ran a risk that RBS shares would fall sharply once the deal was announced, seriously undermining the value of the bid. That is likely to be less of a worry once the bid is made public and the market has a chance to judge what it thinks Royal Bank of Scotland price should be.

Sources said there was also concern about the lack of detail in the RBS proposal, although that may reflect a desire by RBS to avoid being hit by the accusations NatWest has levelled against Bank of Scotland of making wild claims on cost savings not backed up by real knowledge of the business.

With RBS expected to be able to pay more than Bank of Scotland by virtue of the higher cost savings it can extract from eliminating the overlap between its 308 English branches and the NatWest network, analysts said Bank of Scotland now stood little chance of succeeding.

Leading article, Review, page 3

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