Banker's Pride vs. Building Society's Cash: Pricing a Deal

Strategic Insights -

The Birmingham Midshires Building Society has found itself at an impasse, with Royal Bank of Scotland (RBS) set to lose its bid to take over the building society. To resolve the situation, RBS is seeking compensation from Midshires, which would allow it to accept a significantly higher offer from Halifax. The size of the cheque required to break the deadlock is now the main point of contention, with estimates ranging from £5 million to £10 million.

Key Takeaways:

  • The Birmingham Midshires Building Society is caught in a bidding war between Royal Bank of Scotland (RBS) and Halifax.
  • RBS is seeking compensation from Midshires for losing its bid, with estimates suggesting it has spent between £5 million and £10 million on due diligence and regulatory manoeuvring.
  • Halifax chief executive Mike Blackburn has softened his stance on compensation, indicating that RBS may be allowed to bow out with dignity.
  • Midshires is reported to be considering a lower compensation figure of around £2 million, which would be a fraction of RBS's estimated costs.
  • Accepting RBS's offer and compensating it for its losses would allow Midshires to accept a significantly higher offer from Halifax.
  • Michael Jackson, Midshires' executive, may have to put aside his pride and offer a cheque to compensate RBS for its losses.

Statistics:

  • RBS has spent between £5 million and £10 million on due diligence and regulatory manoeuvring for its bid to take over Midshires.
  • Midshires is considering a compensation figure of around £2 million for RBS's losses.
  • Halifax is offering a significantly higher bid for Midshires than RBS, although the exact figures are not disclosed.
  • The exclusivity agreement between RBS and Midshires expires in January next year if no deal is reached.
  • More than a million Midshires members are affected by the impasse between RBS and Halifax.

Sources:

  • The Times, 1998