Rijkman Groenink is the chief executive of ABN Amro. Under his stewardship, the performance of the Dutch bank has been as wooden as a pair of clogs. Indeed, so disenchanted were ABN Amro’s shareholders that they envisaged a place to shove those clogs. (Groenink was recently in hospital for a – no doubt unrelated – appendectomy).
Groenink’s strategy had about as much spice as Edam, but it was not until the manager of the Children’s Investment Fund, Christopher Hohn, acquired a stake in ABN Amro, that things started to change.
Hohn, the man responsible for ousting Werner Seifert as chief executive of Deutsche Börse, exploited a Dutch statute allowing shareholders with a holding in excess of 1 percent to table resolutions at the annual meeting. His proposals were simple: change strategy, break up or sell out.
And so began a protracted bid battle for ABN Amro, opening with a recommended takeover approach by Barclays Bank and ending with a Royal Bank of Scotland-led consortium carving up the Dutch bank like a turkey. Along the way, the credit crunch brought the world’s financial markets to a standstill. Suddenly debt was the rudest of all four-letter words, and banks with expertise in the financial marketplace were shunned.
Over the past 10 years, Barclays has created one of the world’s most successful and sophisticated investment banks, Barclays Capital. Each year it has produced outstanding results. And there are indications that, despite a few well-publicized hiccups, Barclays Capital will emerge from the current drought with a suntan.
But financial markets thrive on confidence. Guilt by association is a common investment strategy, so Barclays’ shares suffered as investors reappraised institutions with investment banking operations. As its share price slumped, the appeal of Barclays’ virtually all-share offer for ABN Amro disappeared faster than Groenink’s appendix.
Yet somehow in this topsy-turvy world of international finance, Groenink has emerged as the best-performing CEO over one, two and five years. It is a phenomenon that has bemused investors.
As banking shares tumbled, those of ABN Amro spiked like a stiletto. That can partly be attributed to the battle: this was the biggest-ever acquisition of a financial institution and premiums were built into both bids. But the €200 mn break fee is also responsible.
When Barclays realized it could not win, it stayed in the battle. Why? The terms of the break fee dictated that if Barclays walked away, it would pay €200 mn to ABN Amro and its new owner. So when ABN Amro withdrew its recommendation for Barclays’ offer, it knew it would soon be writing its former suitor a check.
The break fee isn’t big in the scheme of the overall battle, but it kept two sides in the fight. It instilled discipline. If Barclays had withdrawn, the consortium led by Sir Fred Goodwin, a man who could find pennies in a dollar slot machine, might have tried to reduce its offer, citing the economic climate as the rationale. They were forced to stay and pay – and investors can finally celebrate.
