House for sale:

The battle to control *

Introduction

Early September 2007, ABN AMRO is the largest Dutch bank and the 15th largest bank in the
world by revenues. Low profits and a stagnant share price had made it vulnerable to its
disillusioned shareholders and external predators. In the course of 2007, two competing bids
emerged, one from the UK bank Barclays, and another from an international consortium of
three banks (Royal Bank of Scotland from the UK, Bank Santander from Spain, and Fortis from
Belgium/the Netherlands). On September 20th, 2007, ABN AMRO shareholders will meet to
decide on the future of the bank.

ABN AMRO

Algemene Bank Nederland (ABN) had been created in 1964 through a merger of Nederlandsche
Handel Maatschappij and De Twentsche Bank. ABN became the second largest universal bank in
the Netherlands. Throughout the 1970s and 1980s, ABN focused on expansion outside the
Netherlands. By 1990, ABN achieved approximately 38 percent of its revenues abroad.

Just like ABN, AMRO had been the product of the 1964 merger wave in the Netherlands and
was the result of the amalgamation between the Amsterdamsche Bank and Rotterdamsche Bank.
AMRO management had followed an aggressive expansion strategy, primarily in the local
Dutch market and had become the largest bank in the Dutch market.

When in 1990 ABN and AMRO Bank announced their merger, Chairman of the Management
Board Jan Nelissen proudly announced that ABN AMRO would become a global player. The
merger created the world's sixteenth largest bank with a 1992 capital of US$ 9.4 billion in
equity. ABN AMRO offices were to be found in almost every major city in the world. At the
time, Nelissen particularly meant to emphasise ABN AMRO's US position. ABN AMRO had
managed to become one of the largest foreign banks in the US, where it realised around twenty
per cent of its 1993 revenues.

* This case is based on secondary materials, and has been written by Prof Winfried Ruigrok, Mr Marc
Schuerch and Dr Georg Guttmann, all at the University of St.Gallen, Switzerland.

1
After the 1990 merger, ABN AMRO had a diversified portfolio of financial services in the
Netherlands and abroad. ABN AMRO further built up activities around the world in 56
countries, also in less frequented locations in Eastern Europe, Asia and South America.

From diversification to focus strategy

By the year 2000, after a strategy review, ABN AMRO acknowledges that as a mid-sized
European financial institution it is unable to achieve its grand ambition. Changes in the global
industry environment mean ABN AMRO faces intense rivalry both from traditional banks,
from new rivals such as insurance companies, private equity funds and investment banks, as
well as from financial institutions from a growing number of emerging markets.

In response, it announces to switch from a diversified (or so-called universal bank) strategy to
a focused strategy. Its new three divisions are Consumer & Commercial Clients, Wholesale
Clients and Private Clients & Asset Management. It also announces to concentrate
geographically, focusing on the Netherlands, Brazil and Italy.

These changes coincide with the arrival of new CEO Mr Rijkman Groenink, who stakes his
reputation on implementing this transformation. Mr Groenink, a blond patrician with a right
arm part-paralysed in a hunting accident, is a fierce advocate of competitive individualism.
Mr Groenink holds a Law degree and an MBA from Manchester Business School. He
previously worked at the AMRO Bank, the smaller of the two partners that had merged in
1980. Investors welcome his appointment and the strategy change, and the ABN AMRO share
price temporarily reaches above €28.

In 2004, the Wall Street Journal learns that ABN had been involved in circumventing sanctions
against Iran and Libya. In 2005, the same newspaper reveals that ABN AMRO is entangled in
three fraud cases in the U.S. In reply, Mr Groenink announces to step up internal controls.

Over the years, questions emerge whether the ABN AMRO leadership wholeheartedly
pursues a focus strategy, or whether some still favour a universal bank strategy. Also, the
strategy of geographical concentration is progressing only slowly. At the end of 2006, the bank
still owns significant activities in non-core markets (e.g. LaSalle in the U.S.). Assets held at
home make up just 29.4 percent of total assets.

After the year 2000 profits are disappointing and the share price never shows a strong upward
movement for a longer period (see exhibit 1). ABN AMRO never comes close to its publicised
target of obtaining a Return on Equity that will put it amongst the top 5 of its peer group (of
similar banks). Early 2007, ABN AMRO ranks no. 15 in terms of revenues, but no. 34 in terms
of market capitalisation, leading to mounting investor concerns. As a result, ABN AMRO is
widely regarded as one of European banking’s perennial underperformers.

2
As Mr Groenink acknowledges, the bank's major weakness is its cost structure. Although he
maintains that the bank has a more focused strategy, he admits its geographical scope still
more closely resembles that of the world’s largest universal banks. Geographical scale benefits
are limited and costs exceed those of its major competitors. Dutch brokers even argue the
individual parts of ABN AMRO are worth more than the whole bank.

Bidding overture: The Children’s Investment Fund

The Children's Investment Fund (TCI) is a London-based hedge fund founded by Mr

Christopher Hohn in 2002. The name is derived from its annual donations to the Children’s
Investment Fund Foundation, one of the largest charities in the UK run by Mr Hohn’s wife.
The fund is known for its shareholder activism. As a major shareholder of the German Stock
Exchange, TCI had previously forced the Deutsche Boerse CEO to step down after he refused
to abandon his plans to take over the London Stock Exchange. TCI kept the stake in Deutsche
Boerse which had revamped its strategy and quadrupled its share price since TCI’s initial
investment.

By 2007, TCI owns more than 1 percent of the share capital of ABN AMRO which reflected a
market value in excess of €500m. In view of ABN AMRO’s constantly stagnating share price
development, TCI writes a letter to ABN AMRO Chairman Mr Martinez and the CEO, dated
February 20th, 2007:

“Dear Mr Martinez and Mr Groenink,

(…) As Chairman of the Supervisory Board you are the ultimate guardian and fiduciary
of shareholders' interests. Therefore we are writing to give you the background to our
request today for five motions to be put to all shareholders of ABN AMRO at the next
AGM scheduled for 26 April 2007.

Since the current Chairman of the Managing Board was appointed in May 2000 ABN
AMRO has given shareholders a cumulative share price return of 0% (excluding
dividends) compared to (a) the ABN AMRO selected peer group of approximately 44%
and (b) the Dow Jones Euro Stoxx Banks Index of 44% (…). This terrible shareholder
return is a function of the fact that ABN AMRO's underlying earnings per share has been
broadly flat for around 6 years, during a time when nearly all banks globally have
enjoyed a period of strong earnings growth. (…) The recent acquisition of Banca
Antonveneta at a very high price has also failed to deliver the promised shareholder
value and has caused the market to discount ABN AMRO's share price to reflect its
concern over the Managing Board's acquisition strategy.

As a result of the above failures and risks, we believe that ABN AMRO's current market
capitalisation stands at a significant discount to the fair value of ABN AMRO's
underlying assets. (…)

3
 We believe that it would be in the best interests of all shareholders, other stakeholders
and ABN AMRO for the Managing Board of ABN AMRO to actively pursue the potential
break up, spin-off, sale or merger of its various businesses (or as a whole), in much the
same way you successfully managed and executed when you were the CEO at Sears. We
believe that this strategy would not only create significant shareholder value but also
would best serve all the stakeholders who otherwise would suffer over the long term
from the structurally declining competitive position of ABN AMRO (…).”

The letter takes the ABN AMRO supervisory board by surprise. When he became ABN AMRO
Chairman in 2006, Mr Martinez had expected to round out an immensely successful career by
spending the years leading up to his retirement at the top of one of Europe’s largest banks.
TCI put the 67-year-old American, who had previously been Chairman and CEO of the US
retailer Sears, in a difficult position. No member of the Supervisory Board, which includes
renowned business people such as Baron David de Rothschild, head of the investment banking
dynasty; Lord Sharman, Chairman of the UK insurance group Aviva; and Paolo Scaroni, CEO
of Eni, the Italian energy group, had been under similar levels of investor scrutiny before.

Bidding war: Barclays versus RBS, Santander and Fortis

By the end of February, ABN AMRO’s share price touches a six-year high. On March 19th 2007,
Barclays announces its intent to make an offer to take over ABN AMRO. Barclays looks to
create a financial institution comprising of 47m customers and 220,000 employees. In April,
Barclays makes a specific offer of over €36.25 per ABN AMRO share, which adds up to €65bn
in total. The bank promises to pay the entire sum in Barclays shares. ABN AMROs' top
management team responds favourably to this offer.

On May 1st, TCI issues a second letter to ABN AMRO, this time only addressed to Chairman
Martinez, requesting the Supervisory Board to “immediately terminate the appointment of Mr
Groenink” because he “no longer has any credibility as the Chairman of the Managing Board
and has failed to act in the best interests of shareholders”. TCI further demands “that the
Supervisory Board immediately takes complete control of the sale process in order to fulfil
shareholders’ clear wishes.”

On May 4th, ABN AMRO publicly continues to stand by Mr Groenink. The Financial Times
quotes people close to the bank who say removing him would only add to the uncertainty at
ABN AMRO. However, an unnamed executive close to the Management Board reports that
there has been unrest within ABN AMRO’s Management Board. “Groenink is tough but not
warm. His antennas to his own people and the outside world are not always that good,” the
executive says.

On May 7th, the bidding process enters a second round. A consortium of the Royal Bank of
Scotland (RBS), the Belgium-Dutch bank Fortis and Banco Santander Central Hispano from
Spain states its interest to buy the Dutch bank and split it up at a ratio 38,3%:33.8%:27.9%. RBS

4
primarily looks at ABN AMRO’s activities in the US and Asia, Fortis wants to take over the
Benelux activities, and Santander is interested in ABN AMRO's activities in the Mediterranean
and South America. On May 29th, the consortium submits a formal offer of over €38.40 for each
ABN AMRO share, which values ABN AMRO at €71bn. The consortium estimates synergies
to be around €4.23bn until 2010 and announces to lay off fewer people than Barclays would.
In order to finance the deal, Fortis intends to increase its capital by €13bn with a rights issue
and convertibles for €2bn. In addition, Fortis sells the Spanish All-finance company CaiFor for
€980m. Santander wants to sell real estate for €4bn. (There is no information about fund raising
from RBS.) RBS emerges as the speaker for the consortium.

Despite the superior consortium offer, ABN AMRO’s management states a preference not to
be split up, and indicates to favour the Barclays bid. On 27th April, the Financial Times
comments: “As a result, the consortium and the activist investors have trained their sights on
the supervisory board, who they believe might be more receptive to their arguments. But it is
unclear whether Mr Martinez and other board members have much power to overturn
decisions made by Mr Groenink and his team.” Under Dutch law, a Supervisory Board is
required to act independently vis-à-vis all stakeholders, incl. shareholders. In case of an
acquisition, the Supervisory Board is not obliged to reward the highest offer.

Nevertheless, the Dutch association of shareholders VEB demands that ABN AMRO enters
negotiations with the consortium, while TCI renews its threat to sue Mr Martinez and other
Supervisory Board members for breaching their fiduciary duty by not allowing the RBS
consortium to bid. At the same time, Barclays shareholders fear a classic bidding war and
threaten to block a vote on a required capital increase, which would prevent Barclays'
management from raising its bid for ABN AMRO. Barclays' CEO for Global Retail and
Commercial Banking, Frederik Seegers (a Dutch national), nevertheless publicly shows
confidence that the Barclay offer will prevail.

As events unfold, ABN AMRO’s affiliate bank LaSalle (U.S.) becomes a key pawn. Within the
consortium, RBS is keen to acquire LaSalle. ABN AMRO's management announces its plans to
sell its U.S. affiliate to Bank of America for $21bn, although the consortium values LaSalle at
€(!) 24.5bn. Barclays considers ABN-AMRO's selling off LaSalle as a precondition for a
successful takeover. VEB subsequently takes ABN AMRO to a Dutch commercial court, which
rules that shareholders’ approval is necessary in order to complete this transaction. Barclays
and Bank of America immediately appeal at the Dutch Supreme Court.

Meanwhile the Dutch ING Group and Rabobank, the second and third largest Dutch banks,
enter the scene. They strike a deal with RBS and decide to support the consortium's bid
financially. A bit later, in the month of June, it emerges that ABN AMRO and ING Group NV
had conducted secret talks in the middle of March (see the first increase in ABN AMRO’s share
price, exhibit 6). However, the price seemed too high at the time and no formal offer was made.

On June 15th, ABN AMRO shareholders start a lawsuit against Bank of America. The claimants
argue that Bank of America has always known that selling LaSalle is just a “poison pill” to
prevent other bidders from entering takeover negotiations, and want to achieve that the court

5
prohibits further negotiations by Bank of America to buy ABN AMRO’s subsidiary. On June
26th, the Dutch Supreme Court, in a fast track decision, rules that ABN AMRO was allowed to
sell LaSalle without prior shareholder approval and at the same time annuls the judgement by
the Amsterdam commercial court. ABN AMRO, Barclays and Bank of America welcome this
decision.

On June 27th, the British bank HSBC states its interests in the Brazil activities of ABN AMRO.
Several weeks after, ING, which had previously been interested in cooperating with RBS,
spreads rumours that it considers building up its own consortium together with Citigroup and
the Spanish BBVA in order to buy ABN AMRO. In view of the Dutch Supreme Court ruling,
ING no longer expected the consortium to win the takeover battle.

On July 16th, the consortium sweetens its offer and announces to increase the cash payment
share from 70 percent to 93 percent. In addition and as a response to the Supreme Court
decision, RBS forebears from LaSalle, and the consortium excludes the affiliate from its offer.
In response, Barclays increases its offer by €2.5bn in cash. Barclays obtains the support of the
China Development Bank and the Singaporean Investment-Holding Temasek, which commit
to substantial investments in Barclays: the China Development Bank obtains 7 percent and
Temasek 3 percent of Barclays' shares. In exchange, Barclays achieves access to a potentially
profitable Chinese wealth management market. In addition, Barclays looks for further share
sales in Asia in order to raise the cash component in its offer and pay an overall €14.8bn in
cash. This is to reduce the danger that Barclays’ shareholders will not approve to the capital
increase. Ultimately, Barclays fails to buy enough shares with its share repurchase programme,
so that China Development Bank can only take over 6.7 percent and Temasek 2.5 percent.

On July 30th, with both revised offers at hand, ABN AMRO’s management states that it can no
longer voice a clear preference and withdraws its recommendation for the Barclays offer.
Despite Barclays' efforts to manufacture an attractive bid, the consortium's offer remains at a
higher value, with a higher cash component (exhibit 7). At the same time ABN AMRO’s
management states that it continues to favour a solution which does not break up the bank.
Dutch trade unions, which have tended to support Barclays' offer, launch an investigation
looking into the possibility for ABN AMRO to go it alone after all.

In August, stock exchanges around the world are under pressure because of a mortgage crisis
in the U.S. This causes major problems for both parties. On the one hand, Fortis faces trouble
in financing the acquisition because debt is getting more expensive. On the other hand,
Barclays’ share price drops significantly so that their offer is only worth €58.4bn on August
29th. However, both bidding parties remain optimistic and determined.

6
Questions to the ABN-AMRO case

1) How do you evaluate ABN AMRO’s competitive position by early 2007?

2) What was the objective of TCI’s letter dated February 20th, 2007?
3) What are the advantages of Barclays' offer? What are the advantages of the
consortium’s offer?
4) How do you evaluate the composition and the role of the board by 1st March, 2007?
5) How do you evaluate Mr Groenink's position during the bidding process? How do
you evaluate Mr Martinez’ role?

7
Exhibit 1 ABN AMRO share price development May 2000 – 2006 (compared to Bank index
and raiders)


Exhibit 2 Overview of the bidding banks
Name Forbes 2000 rank (*) Employees Market Cap Sales
Royal Bank of Scotland 13 135,000 124.13bn 77.41bn
Barclays 18 122,600 94.79bn 67.71bn
Santander 27 129,749 115.75bn 62.34bn
Fortis 37 59,747 55.45bn 121.19bn
*Rank is based on composite value including Assets, Sales, Market Cap and Profits

8
Exhibit 3 World-wide presence of ABN AMRO

Exhibit 4 World-wide presence of Barclays

Exhibit 5 Value, rationale and implications of the two bids

Barclays Consortium
Value €13.15 in cash and 2.13 Barclays €35.60 in cash and 0.296 RBS
shares shares
Total value as of €67.5bn €71.1bn
announcement
Total value as of €60.1bn €70.5bn
September 1 st

Synergies Approx. €3.5bn €4.23bn

Strategic ABN AMRO complements Barclay’s ABN AMRO is too widely spread
rationale operations in Eastern Europe, Asia, geographically and will be split
Brazil and India up among consortium partners
Objective Become world’s largest asset manager Very selective growth of the
and 8 largest wealth manager
th consortium partners
Employee 12,800 job cuts and relocation of Job cut “will be less than in the
implications further 10,000 jobs to India Barclays case”

9
Exhibit 6 Stock market development of the bidders and the raiders (2007)

10
Exhibit 7 Chronology of the bidding process (2007)
Date Facts and Figures
20 February Letter from TCI
20 March Barclays states interest in ABN AMRO, without mentioning a specific price.
The stock market values ABN AMRO at €57bn.
23 April Barclays intends to pay €36.25 per share = €65bn in total. ABN AMRO will sell
LaSalle for $21bn to Bank of America
7 May Consortium (RBS) states interest in ABN AMRO
29 May RBS offers €38.40 per share, €30.40 in cash and 0.844 RBS shares for an ABN
AMRO share = €71.1bn in total. (+ keep La Salle, estimated by RBS at €24.5bn).
27 June Consortium threatens that if it has to exclude LaSalle from the bid, it might
only offer €37.40 per share = €69.2bn in total.
16 July Consortium increases cash payment share from 70/79 percent to 93 percent. The
bid remains at €71.1bn. RBS would pay €35.60 in cash and 0.296 in RBS shares
for an ABN AMRO share.
23 July China Development Bank and Investment-Holding Temasek from Singapore
support Barclays and contribute €2.5bn to the offer. In total, they would pay
€67.5bn, whereof €24.8bn are in cash. Barclays would pay €13.15 in cash and
2.13 in Barclays shares for an ABN AMRO share.
30 July ABN AMRO management states it no longer recommends any of the offers
6 August European Union approves a potential takeover by Barclays.
Fortis shareholders approve an increase in capital of €13bn.
10 August RBS shareholders clearly approve the takeover plans.

11
Exhibit 8 ABN AMRO Management Board (at 1st March 2007)
Name Role Gender Age Nationality Appointed1
Rijkman Chairman of the Managing m 57 Dutch 1990
Groenink Board; Group Audit; Group
Compliance and Legal;
Group Human Resources
Joost BU North America; m 56 Dutch 1997
Kuiper Group Business Committee
Wilco BU Netherlands; m 59 Dutch 1999
Jiskoot BU Global Clients;
BU Asset Management;
BU Private Clients
Ron BU Latin America; m 46 Dutch 2006
Teerlink BU Transaction Banking;
Services; EU Affairs &
Market Infrastructure
Hugh Scott- Chief Financial Officer m 48 British 2000
Barrett
Huibert Group Risk Management; m 46 Dutch 2006
Boumeester Corporate Development;
Antonveneta
Piero BU Asia; BU Global m 42 Dutch 2006
Overmars Markets; BU Europe
Refers to team tenure (not role tenure) and indicates the year of first appointment to the ABN AMRO
1

Management Board.

12
Exhibit 9 ABN AMRO Supervisory Board (at 1st March 2007)
Name Gender Age Nationality Appointed1 AC2 NCC3 COC4 Mandates5 Background6
Arthur Martinez m 67 American 2002 X XC XC 3 Retail
(Chairman)
A.A. Olijslager m 63 Dutch 2004 X 3 Food
(Vice Chairman)
Baron David de m 64 French 1999 1 (1) Finance
Rothschild
Louise Groenman f 66 Dutch 1999 0 Politics
Trude Maas-de Brouwer f 60 Dutch 2000 X X 1 Politics
Marcus Vinicius Pratini m 67 Brazilian 2003 X 0 Politics
de Moraes
Paolo Scaroni m 60 Italian 2003 3 Manufacturing
Lord Sharman of m 64 British 2003 XC 4 (1) Finance
Redlynch
Rob F. van den Bergh m 56 Dutch 2005 X 2 (1) Publishing
Anthony Ruys m 59 Dutch 2005 X 1 Consumer goods
Gert-Jan Kramer m 64 Dutch 2006 3 (1) Engineering
Gerhard Randa m 62 Austrian 2006 0 Finance
1 Refers to team tenure (not role tenure) and indicates the year of first appointment to the ABN AMRO Supervisory Board
2 Audit Committee
3 Nomination & Compensation Committee

4 Compliance Oversight Committee

5 Other mandates held in quoted companies. Number in parentheses indicates number of (executive or non-executive) Chairman or Vice-Chairman positions.

6 “Background” refers to the industry where the respective director has spent most of his/her career in.

C Chairman of the respective committee

13