Another Merger To Consider

Thinking about BCE led me to consider another proposed takeover: the ABN-Amro takeover. There are two competing offers, one from a consortium of RBS, Fortis, and Sander (RFS), and another from Barclays. Similar to the BCE situation, the market is thinking that Fortis may not be able to raise financing via debt. This is actually an attractive deal although although with much higher risk than the BCE deal in my opinion. I have laid out the information I can gather below (I can't guarantee 100% accuarcy with some figures so click here for actual information about the takeover from ABN-Amro). Also note that I am only taking about the offer for the ABN-Amro ADS trading on NYSE (the local shares trading in Netherlands have different conditions).

Key Details

RFS: EUR 35.60 + 0.296 newly issued ordinary shares of RBS
Closing date of RFS offer: October 5, 2007

Barclays: 0.5325 Barclays ADSs + EUR 13.151
Closing date of Barclays offer: October 4, 2007

Vote by ABN-Amro shareholders: September 20, 2007

Euro/US$ exchange rate today: 1.3692
Sterling/US$ exchange rate today: 2.0236
Stock price - RBS on LSE: 562 (pence)
Stock price - Barclays on NYSE: 52.34 (US$)
Stock price - ABN on NYSE: 46.80 (US$)

Potential Return

Value of RFS deal today = 35.60*1.3692 + 0.296*5.62*2.0236 = US$ 52.10982
Value of BCS deal today = 0.5325*52.34 + 13.151*1.3692 = US$ 45.8774

RFS simple return (excluding transaction costs, dividends, etc) = 11.3%
BCS simple return (excluding transaction costs, dividends, etc) = -2%


So is it worth it? It certainly looks attractive to me. I think a potential 11% in 2 months isn't bad, with a downside risk of -2% (it can be worse if neither deal goes through but I think that's unlikely). This transaction has way more complications than the BCE one. There is some exchange rate risk along with a risk of decline in the stock price of RBS (but note that the ADS is trading below the cash value of the RFS offer). For investors like me, who are in Canada, the Canadian $ exchange rate fluctuation is another issue.

Overall, I'm going to be keeping a close eye on this one. If I don't find anything else I like in the next 2 weeks, I'll buy the ABN-Amro ADS.

Comments

  1. AnonymousFebruary 10, 2008 at 3:03 PM

    You can get all your merger data for free at www.madmergers.com. They have a lot of educational information too, so people who are just trying to start out can get the help they need.

    ReplyDelete

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