ABN AMRO directors demonstrate well how to survive a merger

Posted on Friday, 10 August 2007. Filed under: Business Intelligence, Commentary, Mergers, Personal Planning for Mergers |

Christmas may be over four months away, but if ABN AMRO is acquired by Barclays or the RBS consortium, it looks as if the current members of the ABN AMRO board will be able to place better Christmas presents under the tree this year. 

As reported in The Times on 2 August 2007 (see the full article online here at TimesOnLine), if the Barclay’s bid goes through, the ABN AMRO supervisory board chairman, would see his pay increase from €113,000 (£76,000) a year to as much as £750,000 if he become chairman of the enlarged group.  This is the level of compensation of Marcus Agius, Barclays’ present chairman. The Scottish bank doesn’t pay it’s chairman as well, by-the-way, as Sir Tom McKillop, the chairman of RBS since April 2006, receives a basic salary of £471,000.  [Note on the foreign exchange:  to translate the pounds into dollars, just double the pound amount.]

It’s not just the Chairman of the Board who benefits.  ABN AMRO’s finance director would get £600,000 a year should he become chief administrative officer at the new company (up from about £444,000 at ABN AMRO) and would be eligible for a maximum bonus of £1.5 million next year (and a minimum of £600,000, not including other benefits such as a company car).  According to the regulatory filings sourced by The Times for their story, the six ABN AMRO supervisory board members expected to join Barclays’ board if the bank wins control of ABN AMRO would see their pay jump from between €40,000 and €70,000 a year to between £76,000 and £200,000.

Although this appears to be a conflict of interest that would lead those directors to prefer the Barclays bid, The Times also made the following point about the RBS bid: 

‘Sources … pointed out that RBS’s higher cash offer would give ABN’s board members a more immediate financial boost, based on their share options in the Dutch bank, than the salaries on the table at Barclays.’

In my earlier blog posting in June on Surviving a Merger, we questioned whether the ABN AMRO directors would be adding post-merger compensation agreements to their employment contracts.  In this case, they probably didn’t need to re-write their contracts, but rather knew that the deal — no matter which bidding bank won — would result in large increases in their personal wealth.  As we noted in that blog, ‘not a bad deal if you can get it.’ 

This is just one more example of the personal planning that goes into surviving an acquisition and the application of good intelligence:  in this case, doing the due diligence to determine how the acquirer’s board was compensated and then negotiating to keep the terms of the acquirer, not the target (despite one stated goal of the deal being to reduce expenses). 

Such compensation increases need not be limited to board members.  Intelligence can be gathered about positions at just about every level in the two merging companies before any deal is consummated.  Such information is essential to have BEFORE making a decision whether to stay or take a redundancy package.

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