24/7 Wall St.

Who would acquire ABN AMRO (ABN-NYSE/ADR)?  First, let’s review the metrics about the company.

This morning shares are up 5% in the US listed ADR’s on reports that TCI Fund Management ‘believes’ that a break-up would unlock the value of what it deems an undervalued international bank operator with lackluster performance.  Simultaneously, Merrill Lynch added the firm to its Europe 1 List of most preferred stocks and reiterated its buy rating on ABN shares.  If I was a conspiracy theorist I would think the two were acting in unison, wink wink.  So the company is urged to explore alternatives that could be asset sales, divestitures, a break-up, or an outright sale. 

In truth, ABN AMRO is one powerful brand that has far more traction outside of the US than it does inside it.  ABN AMRO has a market cap of roughly $66 Billion when you convert the Euros to Dollars.  What is interesting is that the shares in the US have more than doubled since the beginning of 2003 and are close to all-time highs.  There is a "but" attached: if you convert the shares to those listed in Amsterdam in The Netherlands where the base of operations is then the story is much different.  The Euro conversion to dollars accounts for the discrepancy and this means that Europeans haven’t made the same money that US investors have.  In fact the local shares are not at their 5-year highs at all.

The one name that immediately comes to mind that could quite easily acquire ABN AMRO is Bank of America (BAC-NYSE).  Citigroup (C-NYSE) is too much in its own doghouse, and that would leave only a few other US banks and other foreign banks to look at ABN.  Could JPMorgan consider this? Sure, Jamie Dimon has even said he’d consider ‘incremental’ and ‘opportunistic’ deals if you read between the lines. Wachovia (WB) could also consider this. 

So who has larger market caps upon conversion of the shares to dollars? This is not a full list of the companies that could consider this, particularly on the Asian front, but this is a start as to which banking giants would consider it:

US & Canadian Banks
Bank of America (BAC) $239 Billion market cap;
Citigroup (C) $266 Billion market cap;
JPMorgan (JPM) $178 Billion market cap;
Wells Fargo (WC) $122 Billion market cap;
Wachovia (WB) $111 Billion market cap;

Foreign Banks
UBS (UBS) $131 Billion market cap;
Mitsubishi UFJ Fin. (MTU) $129 Billion market cap;
Banco Santander (STD) $119 Billion;
Barclays (BCS) $100.8 Billion;
Credit Suisse (CS) $81 Billion;

It also wouldn’t make sense for American Express (AXP) to consider this now that they have been divesting non-card assets and focusing on their core operations.  ABN AMRO has been noted as a potential target before.  This would be a real gem for someone to acquire and this would be almost entirely outside of the US depository base for a Bank of America so the Federal Reserve wouldn’t block it.  The only problem is that it would make Bank of America more and more like Citigroup.  We’ll see if a bidder emerges or not.

ABN trades at just over 11-times earnings, trades with almost a 4% converted dividend yield, trades at close to 2-times book value, and both its profit margins and return on equity ‘appear’ to be around 20%.  These figures are all stated and converted, so do not take those as hardline and absolute numbers.  Whoever decides to pursue this banking company will have regulatory issues to overcome in the EU and in The Netherlands.  It also has a history that goes back into the early 1800’s and the Dutch might not just let it go because of recent underperformance, so keep that in mind if you are a merger player.

Jon C. Ogg
February 21, 2007

Jon Ogg is a partner in 24/7 Wall St. and can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.