Bank of Scotland's Hostile Bid for NatWest: Analysis of Expenses and Strategic Rationale

Strategic Insights -

Bank of Scotland has made a hostile bid for National Westminster, valuing it at £21 billion. In its full offer document, the bank estimates that it would incur £187.5 million of expenses if the bid is successful, including £105 million of stamp duty and £82.5 million for advisers, legal firms, and public relations outfits. Bank of Scotland's chief executive, Peter Burt, acknowledged that bid expenses would rise if a rival bidder emerged, but emphasized that they would be much lower if the bid failed.

Key Takeaways:

  • Bank of Scotland's estimated expenses for the hostile bid are £187.5 million, with £105 million attributed to stamp duty and £82.5 million for advisers, legal firms, and public relations outfits.
  • The bank's advisers, including merchant banks Morgan Stanley Dean Witter and Credit Suisse First Boston, will receive £82.5 million in expenses.
  • Bank of Scotland's share price has fallen below its 1250p per share value, with NatWest shares also declining by 25p to 1404p.
  • The bank's offer highlights NatWest's underperformance compared to its own stock, pointing to the English bank's higher cost-to-income ratio and unsuccessful diversification into investment banking and the US.
  • Bank of Scotland proposes to sell NatWest's Greenwich NatWest debt markets, Gartmore, and Ulster Bank subsidiaries, and return any surplus capital to shareholders.
  • The bank's chief executive, Peter Burt, has expressed skepticism towards NatWest's new leadership, citing Ron Sandler's lack of banking experience.

Statistics:

  • Bank of Scotland's estimated expenses for the hostile bid: £187.5 million
  • Stamp duty expenses: £105 million
  • Advisers, legal firms, and public relations outfits expenses: £82.5 million
  • NatWest's cost-to-income ratio: 68.5% (compared to Bank of Scotland's 49.1%)
  • Number of processing centres proposed to be reduced: from 54 to 9
  • Cost savings expected to come from eliminating duplication and reduced information technology costs: about £505 million
  • Number of shares sold by NatWest's Gartmore fund management subsidiary in Bank of Scotland: 891,448
  • Number of shares bought by NatWest's Gartmore fund management subsidiary in Royal Bank of Scotland: 502,613

Sources:

  • "Bank of Scotland's estimated expenses for the hostile bid"
  • Bank of Scotland's full offer document (post date not explicitly stated)
  • Bank of Scotland's press release (dated 31 October 1997)
  • Reuters (dated 31 October 1997)
  • The Scotsman (dated 31 October 1997)
  • Bank of Scotland's share price (dated 31 October 1997)