ABN's Brazilian Gambit

Way to put Santander in a very tricky position.

ABN Amro and Barclays have just unveiled their latest weapon in the war against the RBS-Fortis-Santander consortium which also wants to buy ABN. And it's quite a clever one.

At the moment, ABN is selling off its LaSalle unit to Bank of America, and then the rump bank – with operations mainly in Holland, Italy, and Brazil – will be sold to Barclays for €63 billion. But it's possible that the RBS-led consortium might improve on its offer of €71 billion for the rump bank, which offer is contingent on RBS, and not Bank of America, buying LaSalle.

With me so far? Well, now things have got even more complicated. If the RBS-led consortium does increase its offer, then ABN will move to Plan B. Rather than sell LaSalle to Bank of America and then sell the rest of the bank to Barclays, ABN will first sell LaSalle, then sell its Brazilian operation, Banco Real, and then sell whatever's left over to Barclays. Because Banco Real is worth more to a third party than it is to Barclays, that will maximize the amount of money that ABN ends up selling for.

Barclays doesn't want to sell Banco Real: it represents the main engine of growth for ABN Amro. But if ABN and Barclays don't sell Banco Real, then Barclays might not get ABN at all, and that would mean that Barclays itself would become a takeover target.

So, who would want to buy Banco Real? That's where things get really interesting: at the top of the list is Santander, which is part of the RBS consortium. Santander would want to bid for Banco Real, but not insofar as it made the consortium's bid for ABN Amro less attractive. So Santander would probably put in a bid contingent on the consortium winning both LaSalle and the rest of ABN Amro. And in turn, ABN would probably turn around and ignore such a bid on the grounds that it had simply too many contingencies involved.

That would leave the field open to other bidders, such as BBVA or Brazil's Banco Itaú, to buy Banco Real. It's even conceivable that Citigroup might be interested.

It seems as thought the ABN-Barclays deal is rapidly approaching the kind of full-scale breakup that activist shareholders such as TCI wanted all along. But the Brazilian gambit hasn't been triggered yet. Stay tuned...

(Via Alphaville)