Royal Bank triumphant in battle for NatWest

THE BATTLE for NatWest is over. Royal Bank of Scotland is to trump Bank of Scotland's pounds 25.5bn offer and deliver a knock-out blow .

Sir George Mathewson, Royal Bank's chief executive and chairman elect, spent yesterday attempting to agree a deal with NatWest's chairman, Sir David Rowland. However, Royal Bank is prepared to make a hostile bid if necessary, and would probably launch it on Thursday with its full-year results.

The bid will be priced at around pounds 16 a share, compared with a closing price of pounds 15.18 on Friday, and will be mainly shares with a cash element.

An agreed deal would be on what is known internally at Royal Bank as "Fred's terms". This means that the deal would put Fred Goodwin, who is to succeed Sir George as Royal Bank's chief executive in a year's time, in effective charge of the combined group. Ron Sandler, NatWest's chief executive, would have no role.

Mr Goodwin has a reputation for cost cutting and is seen by Royal Bank as the ideal person to push though measures to save more than pounds 1bn a year, which all parties in the bid war agree are essential for NatWest to survive and thrive.

NatWest's advisers were yesterday rushing to put out its final defence document against the Bank of Scotland bid. Stephen Byers, the Secretary of State for Trade and Industry, said on Wednesday that he would not be referring the bid to the Competition Commission. The day after, Bank of Scotland raised its offer from pounds 21bn to pounds 25.5bn.

Mr Sandler, who only took over as NatWest's chief executive last month, is basing his defence on a cost-cutting programme and a plan to sell four of NatWest's businesses - Ulster Bank, fund manager Gartmore, bond trader Greenwich NatWest and a private equity business.

Royal Bank is understood to be keen to keep the private equity side, but to sell the rest.

The bid from Royal Bank will be made by the bank alone, and not in partnership with any foreign groups. Banco Santander, the Spanish bank, holds 9.9 per cent of Royal Bank's shares and has a seat on its board. It is supporting the offer but is not putting any money into the deal.

An agreement between NatWest and Royal Bank would conclude a saga which has involved almost every financial services company in the UK. Originally, NatWest was to buy Legal & General, but the deal was called off when Bank of Scotland launched its hostile bid.

Abbey National, Halifax and Lloyds TSB have all been mentioned as possible bidders for NatWest but Royal Bank, which was rebuffed last year when it made an approach to Barclays, was always the most likely bidder.

The failure of Bank of Scotland's offer for NatWest will now put the pressure on its chief executive, Peter Burt, and make the Edinburgh institution a likely bid target. Bank of Scotland had always been considered protected from a bid because of the Scottish connection, but this has been invalidated by its bid for NatWest.