BoS concedes defeat in bid for NatWest

The Edinburgh-based bank had triggered the battle for NatWest on September 24 last year but cross-town rival Royal Bank was widely viewed as the favourite in the — 20 billion ($32.23 billion) fight after it joined the fray two months later.

Burt said that up until Tuesday many large shareholders in NatWest had indicated their support for his bank’s bid but one major vote went against it and other fund managers then followed suit.

"Their first priority was to ensure that NatWest didn’t surive. It was an extremely close call," he said in the memo, which carried a time-stamp of11:18 am (1118 GMT) on Thursday. NatWest itself was under pressure to admit defeat as more key shareholders deserted it in favour of Royal Bank’s offer.

Scottish Widows Investment Management, with a 1 per cent stake in NatWest, said on Thursday it had decided to go with Royal Bank.

Chief executive of the Edinburgh-based fund management group, Orie Dudley, said Royal Bank’s strategy for financial services was broader and there was greater potential for cost savings in the respective branch networks. "This makes its offer more compelling," he said in a statement.

Bank of Scotland’s hopes received the final blow when the only major fund to support it so far, Phillips & Drew Fund Management (PDFM), said it would tactically switch its 2.3 per cent vote to Royal Bank’s bid if needed. PDFM’s comments also increased the pressure on NatWest to surrender quickly, rather than waiting until the final vote is counted on Monday.

"The market has clearly decided that NatWest should lose its independence," a Phillips& Drew spokesman said. "That’s a view that we at Phillips & Drew share and as a significant NatWest shareholder, we look to the board to end the uncertainty as soon as possible," he said.

"If that requires us to tactically switch our vote towards the end of the process to Royal Bank, then we will do that."

The London stock market was convinced on Thursday that NatWest — one of Britain’s top four banks — would throw in the towel. NatWest’s shares were down 2.3 per cent at 11.24 pounds, as traders pushed the price even closer to the implied value of Royal Bank’s offer. Royal Bank was down 9.6 per cent to 817 pence, while Bank of Scotland was up 1.4 per cent at 680 pence.

But investors largely sat on the sidelines in advance of an expected NatWest board meeting and concession statement later on Thursday. Any admission of defeat by NatWest, which has steadfastly rejected both bids as risky and inadequate, would have to be made in a statement to the Stock Exchange.

NatWest’s fifth largest shareholder,Standard Life Investments, on Wednesday had come out for Royal Bank of Scotland’s bid, saying Bank of Scotland’s plans were riskier.

Standard Life’s endorsement gave Royal Bank three of the top five NatWest shareholders. Including Scottish Widows, Royal Bank now has support from funds owning a total of about 33.07 per cent of NatWest’s shares.

Fund managers and Royal Bank are now pressing for NatWest to agree to recommend Royal Bank’s bid. Investment banking sources denied late on Wednesday that a deal had already been agreed or that NatWest chairman David Rowland had already conceded defeat.

Traders and analysts judged Royal Bank to be the clear favourite to win the battle that erupted last year when Bank of Scotland, which is less than half the size of NatWest, launched its shock hostile bid.

But Royal Bank, tipped as the winner because of strong foreign backin, has seen its fortunes wax and wane. Its chances of success looked in doubt after its final bid on January 31 failed to deliver a knockoutblow.

The contest, however, swung sharply in its favour earlier this week when NatWest’s second largest shareholder Mercury Asset Management (MAM) and its third largest shareholder Schroder Investment Management backed Royal Bank.

Key shareholders still to declare their intentions include Legal & General and Prudential.