Scottish banks go head to head in pounds 25bn battle for NatWest Group

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The Independent Online
THE ROYAL Bank of Scotland will today launch a charm offensive in a bid to persuade NatWest shareholders that its management has a better claim to deliver a dramatic transformation at the high-street bank than its Scots rival Bank of Scotland.

Unveiling the Royal Bank's long-awaited pounds 25.1bn bid for NatWest, Viscount Younger, the RBS chairman, yesterday insisted that the bank was proposing a unique vision of how to take NatWest forward.

RBS said it could increase profits by pounds 240m through income growth as well as cutting costs by pounds 1.18bn, marginally more than the pounds 1.015bn claimed by the Bank of Scotland.

The takeover would result in the loss of 18,000 jobs across the board, 3,000 more than NatWest is seeking to cut. However, the Royal Bank said it wanted "minimal" disruption to customers and would not be closing branches as a result of this transaction.

RBS also plans to keep Ulster Bank, which both NatWest and Bank of Scotland propose to sell as well as the UK arm of Greenwich, the bond broking and derivatives business, although the US side would be sold.

RBS says this is the first time that the Takeover Panel has allowed revenue synergies to be included in an offer document.

"The combination of RBS's growth philosophy, innovation, and restructuring experience with NatWest's scale and presence is highly compelling," Lord Younger said.

In an attempt to distinguish the bank from Bank of Scotland's hostile bid, which NatWest has dismissed as ill-thought-out, Sir George Mathewson, the RBS chief executive and Fred Goodwin, deputy, yesterday presented a detailed exposition to City analysts of how they propose to turn NatWest around. The business plan includes a 30-day timetable for bring key areas of the two businesses together. Fred Goodwin, who would be responsible for implementing the merger, said he had identified 43 revenue-enhancing and 111 cost-saving opportunities.

Sir George said: "The terms are different; the cost savings are different. There is nothing in this in common with the Bank of Scotland except that both banks have Scotland in their title."

The bid is also being supported by BSCH, the Spanish banking giant, which has offered to subscribe for pounds 1.2bn worth of new RBS shares if the bid for NatWest succeeds. CGU, the insurance giant, has offered to buy pounds 300m of RBS shares in the market. CGU has also agreed to replace Scottish Widows as RBS's partner in its bancassurance joint venture Royal Scottish Assurance, and to take a 50 per cent stake in NatWest Life.

The board of NatWest yesterday met to discuss the offer but rejected it as "inadequate". However, Lord Younger said he remained optimistic about securing the agreement of the NatWest board.

A key issue for the NatWest board is how to value what is a mainly paper offer. RBS is offering 0.968m new shares and 305p in loans notes per NatWest share. That is slightly higher than RBS's offer on Friday and based on Friday's closing share price of 1,328p would have been worth 1,598p.

By yesterday's close when the RBS share price had fallen by 87p to 1,241p, the offer was worth 1,506p, putting it below the Bank of Scotland's higher offer of 1,584p. But with NatWest share price falling by 74p to 14.44p, the see-through value of the RBS offer was still 4 per cent above the NatWest price.

Analysts said it was still too early to gauge institutional reaction but the signs were that RBS will get some credit for having put together a strong vision for the business but will have to pay up more to clinch the deal. Some had been hoping that RBS would come in with a knockout offer of at least pounds 17 a share.

Outlook, page 21