The Barclays Catch-22

Dennis Berman talked to Barclays president Bob Diamond today, and got this astonishing admission:

“The Barclays share price, as it rises over the next few weeks, will be critical to our success in the deal,” Diamond said in an interview with Deal Journal today.

The deal in question, of course, is Barclays' attempted takeover of Dutch bank ABN Amro. Barclays' offer is lower than that of the rival RBS-led consortium, which means that in order for the Barclays offer to succeed, the English bank's share price is going to have to rise substantially, as Diamond says.

Now this is where things get interesting. Barclays' bid for ABN Amro was already fully valued, and if it pays much more than this, it will likely be overpaying. (Barclays can't get the economies of scale that the RBS consortium can, especially in the Netherlands.) If Barclays wins ABN Amro, then, its shares, like those of most successful acquirers, are likely to drop.

On the other hand, if Barclays fails to win ABN Amro, then Barclays itself becomes a serious takeover target overnight. As such, its shares are likely to rise.

In other words, if you think Barclays is going to win ABN Amro, you should sell the shares, which will cause it to lose ABN Amro, which will make it a takeover candidate, which will make the shares rise, which will make it able to win ABN Amro after all, which means the shares will drop...