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Daily Telegraph: Business comment: Banking sector stirs. . . and Barclays has its work cut out

EXTRACT: The recent history of Anglo-Dutch mergers is not great – Unilever, Royal Dutch Shell and Corus have not always inspired confidence.

By Damian Reece
Last Updated: 3:20am GMT 20/03/2007

Barclays may well be an extremely good fit for ABN Amro but that doesn’t mean it’s going to win what looks set to turn into an auction for the struggling Dutch banking giant.

It’s clear why John Varley, the Barclays chief executive, is keen to do a deal and the fact that the Barclays share price was nudged only slightly down yesterday suggests the market is happy to give him and his team a chance. There are overlaps that can be eliminated and costs saved to boost profitability. ABN delivers a mid-west US business and operations in emerging markets such as Brazil. As a whole the ABN assets are good but could be made great by more competent management as part of a bigger, more integrated global bank.

The odds, however, are stacked against Varley this morning. The instinct of ABN shareholders, who have suffered years of disappointment, will be to extract a high price for ceding control. Barclays’ rivals, such as Santander in Spain and ING in the Netherlands, probably have greater overlaps with ABN so could strip out even more costs and justify a cash and shares deal that represents a higher price on day one.

Barclays shareholders would prefer a nil premium merger but would that suit ABN investors and management? It’s going to be a hard sell. The recent history of Anglo-Dutch mergers is not great – Unilever, Royal Dutch Shell and Corus have not always inspired confidence. Such muddled structures are outdated and Varley would need to be clear that, in any merger, it’s the Barclays boys who are in charge.

ABN shareholders could probably be persuaded of that, if not ABN management. But Varley would then have to sell them a long-term growth story, arguing they would be better off holding Barclays shares for the future potential upside than taking the cash element that would probably be on offer from a European rival.

But this is just the overture to a global banking drama that will see several other players take centre stage with their own deals. Having revealed its ambitions, Barclays itself is now in play with Bank of America the much touted suitor.

As the world economy has shifted, the banking sector has remained remarkably static – until now.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/03/20/ccom20.xml

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