Barclays-ABN; Biggest Financial Services Sector Merger on Cards

Setting the stage for the biggest financial-services takeover in history, Barclays Plc, the third-biggest U.K. bank, and ABN AMRO Holding NV, the largest Dutch bank, have agreed to some initial merger terms.

The two banks disclosed that the merged entity would be listed in London, have its headquarters in ABN AMRO's hometown of Amsterdam and would split the top two jobs.

The structure outlined is similar to that of Royal Dutch Shell, which is also incorporated in Britain but uses the Netherlands as its headquarters and tax base.

Under the proposal, Barclay’s John Varley would take up the job of chief executive in the combined bank, and ABN’s Rijkman W. J. Groenink, would be the chairman.

Referring to the fact that the price of the deal has not been disclosed, Rene Bastiaenen, a money manager at Amsterdam-based Eureffect BV said, "These aren't the most important issues. The important issues are the price, the strategy, and what kind of synergies ABN AMRO and Barclays can generate considering they have little overlap."

Ed Collins, a London-based fund manager at New Star Asset Management Group Plc, has a different opinion. He said, "Deciding the personalities involved is almost as important as deciding on the price. It shows willingness on both sides for the negotiations to continue positively."

Sources reveal that the two banks are trying to reach an agreement within 30 days. This takes the talks close to ABN’s annual shareholder meeting on April 26.

Meanwhile, TCI Fund Management, the hedge fund that called for the breakup of ABN AMRO said that the Dutch bank should seek other takeover offers also. It may be recalled that the ING Group, Banco Bilbao Vizcaya Argentaria and BNP Paribas have also recently been interested in all or part of ABN.

If the deal goes through, the merged bank would rank as the world's sixth-largest bank with a combined market value of more than $160 billion. The combined company would have $3.2 trillion of assets and 230,000 employees.