Fortis to vote on ABN AMRO buy

6 August 2007

BRUSSELS (AP) – Shareholders of Fortis NV vote Monday on whether to participate in a three-bank consortium bidding EUR 70.6 billion for ABN AMRO Holding NV.

The Fortis vote will be pivotal in determining whether the Royal Bank of Scotland PLC-led consortium will win the bidding for ABN or whether a rival offer by Barclays PLC worth around EUR 63.7 billion will prevail instead. Either takeover would be the largest in the financial industry’s history.

Barclays’ bid was formally launched Monday, and ABN AMRO said Monday it would hold a shareholder meeting on 20 September to debate the merits of the two bids. The consortium has already launched its bid, contingent on Fortis shareholders’ approval.

Fortis’s prospective share of the deal is EUR 24 billion, a massive buy for a bank which itself was worth just EUR 37.1 billion as of Friday.

In the consortium deal, the Belgian-Dutch Fortis would acquire the bulk of ABN AMRO’s Dutch operations, and its wealthy private clients and asset management businesses worldwide.

Fortis’s board says that, mostly due to cost savings from combining the two companies’ operations, the deal will add 4.3 percent to its earnings per share by 2010, though it will hurt earnings in the short run due to restructuring costs.

Monday’s vote is more complicated than it otherwise would be because Fortis shareholders are also being asked to approve a share issue of up to EUR 13 billion in order to help finance the deal.

The prospect of all that dilution – and the risk that the deal could turn sour – has already led to a 14 percent decline in Fortis’ share price since the start of the year.

Analysts believe Fortis’ shareholders will ultimately give approval for both the takeover and the share issue, but it could be a very close call.

“In our view, the probability of the capital increase being approved versus rejected is 60-40,” wrote analyst Jean-Pierre Lambert, of Keefe, Bruyette & Woods, in a research note.

Under Fortis’s charter, a minority of just 25 percent of shareholders can block a share issue.

Some shareholders probably do not want the deal. In addition, hedge funds looking to make a quick profit, or investors with an interest in Barclays winning the bidding war for ABN AMRO, could conceivably have built up a large enough stake in Fortis shares in recent weeks to put together a blocking vote.

If the share issue is blocked, Fortis’s share price would almost certainly shoot higher, netting the “blockers” a quick profit.

However, it is not clear whether just blocking the share issue would mean victory for Barclays. If shareholders approve the takeover but not the share issue, Fortis could look for alternate ways to pay, such as issuing fewer shares, taking on more debt, and selling other assets.

If they nix both, Barclays wins.

Because of Fortis’s dual-headquarters structure, the vote will take place twice – first in Brussels in the morning and then in Utrecht, Netherlands, in the afternoon. Shareholders can vote in both, either, or neither, but both meetings must approve the share issue for it to go through.

If the share issue is approved, analysts believe the consortium will almost certainly win ABN AMRO, given that its offer is worth so much more than Barclays’.

Barclays says its deal is still attractive because it will provide greater growth in the long run, despite the lower value.

Subject: Dutch news, Belgian news