If the last two years had one trademark, it would be the return of the massive multi-billion dollar merger. These took place under pressure of the continuing consolidation in many industries, as well as under influence of the extremely low interest rates, the ample availability of liquidity in the financial markets and the still relatively low asset prices. And last but not least: the possibilities that such an acquisition or merger sometimes offered to move one’s headoffice to a fiscally favourable location, in order to save millions and millions of dollars in tax money.
The massive oil-related acquisition of BG (aka British Gas) by Shell, the telecom merger between T-Mobile and Dish Networks, the ‘Global Top 3’ beer merger between InBev and SABMiller or the ‘Aussie’ merger between Beach Energy and DrillSearch (oil industry) are just a few examples of the tidal wave of international consolidation flooding the corporate landscape currently.
Yet again, the sky is the limit for Mergers and Acquisitions and there seems to be no boundary for the ambitions of the large corporations, when it comes to enlarging their market share.
However, there is still one big, tell-tale example of the total wreckage that can emerge from mergers and acquisitions gone awry: the €75+ billion takeover of ABN Amro, by the ‘Three Cash-queteers’ Banco Santander, Royal Bank of Scotland (RBS) and Fortis Bank.
This led to the demise and subsequent reversed takeover of Fortis Bank by the fully nationalized(!) ABN Amro bank and the saving of RBS by the British government with billions and billions of pounds. Only Banco Santander came out of this match as a winner, in this sense that the bank (somewhat) profited from the acquisition of ABN Amro. And ABN Amro itself will make a renewed entry at the international stock exchanges at the end of this year (i.e. 2015), with an IPO of equity certificates, after having been government property for almost seven years.
When the smoke clouds of the ABN Amro acquisition and the subsequent governmental rescue actions of ABN Amro, Fortis and RBS had lifted, RBS had ended up with the international wholesale (payments) network of ABN Amro; ten years ago definitely one of the crown jewels of the former Dutch national pride.
Yet, this crown jewel did not bring RBS much luck, apart from the necessary (partial) nationalization of this Scottish mega bank... In fact so little, that within a few years from now, there will come an untimely end to this Dutch banking adventure of RBS. It shows once and for all that the acquisition of ABN Amro was one of the worst and most expensive corporate decisions in history and as a matter of fact, it should be a worst-case example of the hazards of such large mergers and acquisitions for generations to come.
Het Financieel Dagblad printed a series of articles regarding the exit of the CEO of the Dutch operation of RBS, Jan de Ruiter. Here are a few snippets of these two articles.
RBS The Netherlands will further abolish its activities in The Netherlands without Jan de Ruiter as figurehead. The CEO of the British bank in The Netherlands has abandoned his current job and will just continue as an advisor. He will support Chief Risk Officer Idzard van Eeghen in the coming period in his assignment to further abolish the activities of the bank. De Ruiter called it ‘a natural moment to say goodbye to the bank’.
The career of De Ruiter at RBS has been under the sign of shrinkage. He moved from ABN Amro to RBS when the Brittons bought the corporate branch of ABN in 2007. Of the 3500 people that De Ruiter started with, only 450 will have remained at the end of this year. In due course, RBS in The Netherlands will end up as a side-office with only 15 employees, who help companies with financing issues and risk management.
The Dutch branch of RBS has been terminated as a full-service bank by the parent company in Edinburgh. The branch is now busy with abolishing the wholesale payment services, the former ‘pearl in the shell’ which it bought from the ABN Amro estate. RBS is aiming for its domestic market and abolishes low-profitable subsidiaries.
After RBS had acquired the foreign network of ABN Amro, there came an end to the bank that had been seen as the main financial institution in The Netherlands. Not much later RBS itself endured a direct hit from the crisis.
After Jan de Ruiter had left ABN Amro after a 20 year stint, in order to continue his career at RBS, he entered into an eight year long struggle-in-vain to make a success of RBS in The Netherlands. More and more activities moved to London, until only wholesale payment services remained. And now even that activity will be abolished.
De Ruiter had noticed soon that RBS had made ‘a terrible mistake’ with its acquisition of ABN Amro. Especially the banks that focused on corporate finance and business banking were targeted by the credit crisis. This was exactly what the acquired ABN Amro parts did. On top of this there was the special circumstance that these parts had been mainly financed with short-term loans. Especially this particular market was almost totally abandoned during the crisis.
To his personnel De Ruiter emphasized, however, that also under the roof of ABN Amro itself, the damage would have been substantial.
This whole second article is a very good read indeed and I advise to read it for everybody who masters Dutch or uses Google Translate, as it paints a clear picture of the 'Mission Impossible' that De Ruiter was in.
I guess that Jan de Ruiter was partially right when he stated to his personnel that ABN Amro – without the acquisition by the ‘Three Cashqueteers’ - would also have endured a full blow of this devastating crisis. In hindsight we can safely state that in 2007 the dry rot had already set in at this ‘Dutch pride’ ABN Amro, making it in fact ‘an accident waiting to happen’.
What I want to emphasize, however, is that this reckless and mindless acquisition of ABN Amro by the three banks Santander, Fortis and RBS has brought not one, but three out of the four involved banks at the brink of self-destruction, at the expense of billions and billions in tax money, necessary to rescue these banks.
That is a very important lesson to learn for all those daring and power-hungry companies, sitting on a stockpile of billions and billions of Euro’s/Dollars/ Yuans/Yens in nearly free cash. A large merger or acquisition is not an end-state, but a beginning of a new and very uncertain adventure with an unpredictable outcome.