29th May 2007 08:25
Banco Santander Central Hispano SA29 May 2007 BANCO SANTANDER CENTRAL HISPANO, S.A. Acquisition of certain businesses of ABN AMRO Holding N.V. ("ABN AMRO") for approximately €19.9 billion Paste the following link into your web browser to download the PDF document related to this announcement: http://www.rns-pdf.londonstockexchange.com/rns/3269x_-2007-5-29.pdf 29 May 2007 Summary Banco Santander Central Hispano, S.A. ("Santander"), together with The RoyalBank of Scotland Group plc ("RBS") and Fortis N.V. and Fortis S.A./N.V. ("Fortis") (collectively, the "Banks" and each a "Bank"), has announced a proposed Offer(the "Offer") for all of the ABN AMRO ordinary shares. The Banks propose to offer €30.40 in cash plus 0.844 new RBS Shares for each ABNAMRO ordinary share, equating to €38.40 per ABN AMRO ordinary share(1). Thetotal consideration payable to shareholders of ABN AMRO under the Offer wouldtherefore be €71.1 billion(2). Further information relating to the proposed Offer is contained in theannouncement made by the Banks today. Once the proposed Offer has been completed Santander will acquire the followingcore businesses from ABN AMRO (together the "ABN AMRO Businesses"): • Business Unit Latin America (excluding wholesale clients outside Brazil) including, notably, the Banco Real ("Real") franchise in Brazil; • Banca Antonveneta ("Antonveneta") in Italy; and • Interbank and DMC Consumer Finance ("Interbank"), a specialised consumer finance business in the Netherlands. It is expected that Santander will pay approximately €19.9 billion2 or 27.9% ofthe total consideration payable under the proposed Offer. Of this amount,approximately €18.8 billion2 will be the share of consideration attributable tothe ABN AMRO Businesses and the remainder will be the share of considerationattributable to Santander's share of ABN AMRO's shared assets. ABN AMRO's sharedassets (which include ABN AMRO's private equity portfolio, its stakes inCapitalia and Saudi Hollandi and Prime bank) will be managed for value. The Banks are working together to develop a comprehensive plan for thereorganisation of ABN AMRO which is expected to deliver the anticipatedtransaction benefits while minimising execution risk. Given the extensiveseparation and integration experience of each of the Banks and their proventrack record in delivering projected cost savings and revenue benefits in prioracquisitions, we are confident that this plan will be implemented successfully. In 2006, it is estimated that the ABN AMRO Businesses together generated profitbefore tax of approximately €1.55 billion(3), or 31% of ABN AMRO's profit beforetax, excluding the amortization of Antonveneta intangibles and earnings relatedto shared businesses. Strategic rationale We believe the proposed Offer has compelling strategic rationale for Santander,for the following reasons: • Acquisition of the ABN AMRO Businesses will increase our exposure toattractive markets which we know well and in respect of which we have developedthe tools necessary for effective execution; • The ABN AMRO Businesses have significant potential for growth; • We are confident we can add significant value to the ABN AMROBusinesses by implementing our global commercial banking and retail businessmodel, by introducing our proprietary technology platforms and by generatingsynergies; and • We have a strong integration track record both in Europe and in LatinAmerica. As a result, we believe the risk involved in integrating the ABN AMROBusinesses is relatively low. Transaction benefits Overall, our projected synergies in connection with the acquisition of the ABNAMRO Businesses are as follows: Net Revenue Synergies Cost Synergies Total synergiesBusiness Unit Latin America €110m €700m €810mBanca Antonveneta €60m €150m €210mConsumer Finance Business €5m €5m €10mTotal €175m €855m €1,030m Reorganisation Following completion of the proposed Offer there will be a reorganisation of ABNAMRO which will include the orderly separation of the ABN AMRO Businesses fromABN AMRO. We believe we can successfully integrate Real in Brazil andAntonveneta in Italy into the structure of our Group. We have successfullycompleted a number of similar integrations, including the integration ofSantander Mexicano and Serfin, Santander Chile and Banco Santiago, SantanderBrazil and Banespa, Totta in Portugal and Abbey in the UK. In all cases, we havecreated stronger integrated units, with improved operating efficiency andenhanced commercial capabilities. The reorganisation will also involve the orderly separation of those parts ofthe ABN AMRO business in which Fortis and RBS are interested and the ABN AMRO'sshared assets, which have not been ascribed to any of the Banks and which areexpected to be disposed of over a period of time with a view to maximisingvalue. Funding We expect to finance approximately 51% of our proportion of the considerationpayable under the proposed Offer through balance sheet optimisation (includingbalance sheet leverage, incremental securitisations and asset disposals), with atarget core Tier 1 capital ratio of 5.3%. Over time, we expect our core Tier 1ratio to return to a level closer to 6%. We expect to finance the remainder of the consideration (49%) through mandatoryconvertible securities and a rights issue. EPS impact Based on the funding structure detailed above, we expect the deal to have apositive impact on our EPS from the first year. We expect the EPS impact to be+1.3% in 2008, +3.8% in 2009 and + 5.3% in 2010. Arrangements with Fortis and RBS Immediately upon completion of the proposed Offer and during a transitionalperiod while the reorganisation is completed, ABN AMRO will become an indirectsubsidiary undertaking of RBS, owned jointly by the Banks through theiracquisition vehicle, RFS Holdings B.V. ("RFS Holdings"). RBS will lead theBanks' orderly reorganisation of ABN AMRO and assume the lead responsibility forensuring that ABN AMRO is managed in compliance with all applicable regulatoryrequirements from completion of the proposed Offer Fortis, RBS and Santander have entered into an agreement which relates to theproposed Offer for ABN AMRO, their shareholdings in RFS Holdings B.V. and theplanned reorganisation of ABN AMRO. ABN AMRO Businesses Business Unit Latin America Summary of the business ABN AMRO has been present in Brazil since 1917 and, through the acquisition ofBanco Real and Bandepe (1998), Paraiban (2001) and Sudameris (2003), hasacquired a strong position in the market. ABN AMRO currently operates in theBrazilian market under the Real name. Real is today a fully integrated consumerand commercial bank that covers the whole country with more than 1,900 branchesand 8,700 ATMs. In addition, Real's Van Gogh preferred banking services target affluent clientsacross the whole of Brazil. Furthermore, in consumer finance, ABN AMRO Aymorehas relationships with more than 15,000 active car dealerships through which itprovides vehicle financing and it conducts other consumer goods financingthroughout Brazil. Strategic rationale • As communicated during our Latin America Investor Day, we believe theLatin American banking systems are enjoying the benefits of lower risk andhigher stability, high economic growth and increased demand for banking productsand services which together suggest further investment is necessary. - The penetration of products such as mortgages, retail deposits or mutualfunds is low by international standards. Indeed, Brazil is the BRIC market withthe lowest banking products penetration as a percentage of GDP. We believe theseproduct markets will show dramatic growth as the Brazilian economy develops andthe cost of credit falls. - We believe that no other large economic area offers the same combinationof economic and demographic growth potential, sound banking systems and lowpenetration of banking products and services. We believe the revenue growthopportunity currently present in Brazil will become increasingly scarce in theinternational banking landscape. - In addition, the Brazilian economy is currently benefiting from acombination of sound fiscal and monetary policies and a favourable globaleconomic environment. - As a result, Brazil has been running a current account surplus and aprimary fiscal surplus. This has increased the confidence in Brazilian capitalmarkets and enabled debt issuance in local currency at long term maturities andfixed rates. Brazil is therefore building a traditional local currency yieldcurve which reduces dependency on external financing. This reduces Brazil'svulnerability in an event of a global downturn or a sudden correction infinancial markets. Consequently, we believe Brazil may be able to attaininvestment grade status in the near future. • Brazil is a market we know well We have been present in Brazil for many years. We have bought several banks inBrazil (Banco Geral in 1997, Banco Noroeste in 1998, Banco Meridional in 2000and Banespa in 2000). Over the past ten years, we have successfully integratedeach of these banks into the Santander business in the Brazilian market. • Real is an attractive franchise, which is very complementary toSantander's existing business in Brazil - Real has an excellent customer franchise in Brazil, with a broaddistribution network. On a standalone basis, Real is the 4th largest bank bytotal loans, deposits and revenues. - The combination of Santander's Banespa and Real will create a leading bankin Brazil, ranked 2nd in deposits, 3rd for network size (with more than 3,700branches and PABs), 3rd in total loans and 4th in revenues. - This scale advantage will translate into economies of scale, strongercommercial capability and an advantage in what is a distribution-intensivebusinesses. - The combined bank will be on a par with Bradesco and Itau in terms ofmarket share and infrastructure. - Real will complement Santander's existing operations in Brazil: - From a geographical point of view, the combined bank will form apowerhouse in the South/South East of Brazil, the economic hub of the country.As the table below shows, it will have market shares of 20% in Sao Paulo, 13%in Rio de Janeiro, 11% in Rio Grande do Sul and 9% in Minas Gerais. - In the South/South East (which is the source of 64% of the BrazilianGDP) the market share of the combined bank will be 16%. In addition, Realprovides presence in areas where Santander is currently underrepresented, suchas Rio de Janeiro and Minas Gerais, while Santander is strong in regions inwhich Real is weaker, such as Rio Grande do Sul. Branch Market Share by Region: Region % of GDP Market Share Market Share (Real) Combined Market (Santander) ShareSao Paulo 34% 13% 7% 20%Rio de Janeiro 13% 3% 10% 13%Minas Gerais 10% 2% 7% 9%Rio Grande do Sul 8% 8% 2% 11%Subtotal 64% 9% 7% 16%Brazil total 100% 6% 6% 12% - Santander Brazil and Real also have a complementary business mix:Real is stronger than Santander in areas such as mass market, consumer loans andSMEs whilst Santander is stronger than Real in areas such as affluent bankingand business/corporate banking. Breakdown of Loans by Customer Segment:Customer Segment Santander RealConsumer Lending & Cards 34% 44%SMEs 7% 25%Corporates 32% 19%Large Corporates 24% 8%Mortgages 3% 4% • We believe that this transaction would be an excellent complement toour existing operations in Latin America. Following the transaction, we willhave a market share close to 15% in the two largest markets (Brazil and Mexico),a market share above 20% in Chile and a market share above 10% in other marketssuch as Argentina, Venezuela and Puerto Rico. Our market share in the LatinAmerican region as a whole will become between 10 and 15% in all major products. We believe we can add significant value to ABN AMRO's existing Latin Americanbusinesses. As explained above, the combination of our existing Brazilianoperations and ABM AMRO's LatAm business unit would have comparable market shareto Bradesco or Itau. However, even assuming realisation of the expectedsynergies in full, the combined bank would still generate pro forma net profitwhich is lower by more than 25% than the consensus expected net profit of eachof Bradesco and Itau. Our medium-term ambition is to reach the same level of profits as thosegenerated by Bradesco and Itau by deriving cost synergies and revenue benefitsand by investing in the development of a leading banking franchise in Brazil. Cost synergies and merger plan (see attached pdf link) We have structured a plan with 5 clear initiatives to improve efficiencythroughout the combined bank: 1. Efficiency best practices Partly as a result of our strong IT system, the ratio of administrative (i.e.,non-staff) expenses to total customer volume (loans + deposits + off-balancesheet funds) is 1.85% at Santander Banespa against 2.24% at Real. We believe we can bring Real's ratio closer to that of Santander Banespa,through a combination of better practices (which we expect to implement upontaking control of Real) and, over time, the implementation of our proprietary ITsystem. We expect to introduce Santander Brazil's operating practices to Realbefore fully integrating the banks. Initiatives for improving operating practices include: - IT & operations rationalisation: banking operation and communication rationalisation, revisiting outsourcing contracts, cancellation of non-critical projects, etc; - Tighter management of contracts to reduce costs to a level equivalent to Santander's; - Channel structure optimisation (branches, contact centres); - Marketing and product rationalisation and simplification; and - Headcount optimisation, if necessary. We expect to achieve more than 40% of the anticipated cost synergies just bymoving Real closer to the operating practices of Santander Brazil. 2. IT integration Over time, the combined bank will operate with a single integrated, multi-bankIT system. We have recently completed the migration of all of the banks wecurrently own in Brazil onto a single IT platform. We are confident we can alsomigrate Real's operations to this platform with very little incremental cost.This is consistent with our goal of putting the entire Santander Group on asingle IT platform by 2010. 3. Operations integration We will also integrate the respective banks' back office functions. Duringintegration, the networks of the two banks will be kept separate, in order toavoid disruption in their commercial activities. The relevant initiatives to achieve this include: - Back office integration and outsourcing to Santander LatAm Factory in Sao Paulo; and - IT services integration and outsourcing to Santander IT Factory in Brazil. 4. Head office integration We will also fully integrate the head offices of both banks, including allproduct factories and support functions. The relevant initiatives to achieve this include: - Rationalisation and integration of support functions: finance, compliance, risk, human resources, legal, building maintenance, security and administration; and - Integration of global businesses: treasury, global markets, payments, insurance and asset management. 5. Full merger and network optimisation As part of the full merger of both banks, we expect to undertake a networkoptimisation initiative. As mentioned above, the geographical fit of the banksis excellent. However, there will unavoidably be a certain degree of duplicationbetween the two networks. As a result, some branches will be closed andrelocated. However, we believe this will affect a very limited number ofbranches. Our preliminary studies suggest that there will be no net reduction ofbranches over the medium term. As explained above, a key limb of our future strategy is to continue to investin developing infrastructure in the Brazilian banking system and we have a cleargrowth strategy for the region. We have opened more than 350 branches acrossLatin America in the past two years. Our plan is to continue expanding ourinstalled capacity in order to be better positioned to take part in thestructural growth of the banking systems in the region. The relevant initiatives to achieve this include: - Some regional structure rationalisation; and - Some optimisation of the commercial organisation and a single brandingstrategy, at the appropriate time. In most banking integration processes inLatin America (e.g., Mexico, Chile or Brazil), we have kept separate brands overrelatively long periods of time. All our units in Latin America are nowconverging to a single brand, Santander, in order to benefit from a singleidentity as well as marketing initiatives at group level. We are confident that the transaction will enhance the service and the productoffering to our customers and at the same time generate greater careeropportunities for our employees. Although it is too early to be able to provideprecise estimates, we do not expect a significant number of redundancies. It isexpected that all initial employment reduction will be undertaken through earlyretirements or voluntary redundancies. We expect the majority of redundancieswill take place through normal employee turnover (which is approximately 20% perannum in Latin America). However, our strategy is to continue investing in our front office andstrengthening our commercial structure. Over the past 2 years, we added morethan 12,000 net employees to our Latin American operations, which is the resultof (IT-enabled) efficiency improvements in our support areas and stronginvestments in commercial areas. In addition, we will make an effort to offer opportunities elsewhere in ourorganisation to staff working in areas in which there is clear duplication.Furthermore, part of the cost cutting exercise will relate to Real's outsourcingagreements, which will not affect Real employees. The integration is expected to take place over a timeframe of three years, withthe announced synergies being fully reflected in the P&L of the combined bank by2010. Overall, we expect these measures to generate €700m in cost synergies by 2010. Low execution risk / integration plan We believe the execution risk inherent to the proposed transaction for Santanderis low. Santander has a very strong acquisition track record in Latin America(including Brazil) having integrated several entities (Banco Geral do Comercio,Banco Noroeste, CF Meridional), which now operate as a unified business underthe Santander franchise. All our banks in Brazil are now fully integrated andoperate on a single IT platform. Santander Brazil has a scalable IT system whichit expects will be well able to accommodate the operations of Real. In addition, over the past ten years, we have carried out several majorintegrations in other parts of Latin America, including Mexico (SantanderMexicano and Serfin) and Chile (Santander Chile and Banco Santiago). During the initial integration stages described above, we intend to keep thecommercial structures of Santander Brazil and Real separate, with each operatingunder its own brand, while we integrate the operating areas. This is to ensurethat there are no distractions during this initial phase and that the twoorganisations keep their commercial focus. Once the operating functions havebeen integrated we intend to take a decision on the combination of the banks'commercial structures. This is consistent with the approach we have taken in other Latin Americanmarkets. For example, we have operated successfully in Mexico and Chile with twobrands for a significant period of time before taking the decision to unify thebrands. In 2006 and 2007 the Santander Group has moved towards a single brand name inall of the markets in which it operates (with very few exceptions, such asBanesto and Banif in Spain.). We would therefore expect to bring the combinedbank under the Santander brand in time. In-market revenue synergies In addition to cost synergies, we also expect to generate significant revenueenhancement as a result, principally, of four initiatives: 1. Taking full advantage of the scale of the combined bank We believe the combined bank will be able to take advantage of enhanced growthopportunities associated with its increased scale. We believe the enlargeddistribution network of the combined bank will result in an enhanced competitiveposition. The combined branch network will give us a better coverage of the Brazilianmarket, especially in regions such as Rio de Janeiro and Minas Gerais. Thisleaves us better placed to take advantage of commercial opportunities, mainly inthe business market but also in the retail sector and, in particular, in thoseparts of the commercial sector, such as transactional business, where fullcoverage of the market is key. 2. Sharing best practices We are confident Real can benefit from our expertise in areas in which we havetraditionally been strong, such as affluent banking, retail mutual funds andbusiness banking. Similarly, Santander Brazil can benefit from Real's strengthin areas such as mass market and the small companies segment. 3. Leveraging the commercial potential of Santander's IT system We believe the implementation of Santander's IT system in Real's network willenhance its revenue generation potential by increasing the time allocated tocommercial activities (instead of administration) and generating CRMintelligence. 4. Synergies with Santander's global units We believe that, by working together with Santander's global business units,such as our Global Insurance division, our Global Asset Management division andour Global Credit Cards division; Real can achieve significant improvements incommercial performance. Santander global support units can also contribute tomore efficient management, control and administration in Brazil. We expect revenue synergies to be of at least EUR 110 m, which represents lessthan 2% of the combined revenue base of both banks. Net cost and revenue benefits Overall, we expect the transaction to deliver the following benefits toSantander: • €700m of cost synergies, representing 32% of the proforma 2006 costbase, which will be achieved mainly through the integration of back officestructures; and • €110m of revenue benefits, equivalent to 3% incremental revenue growthfor the acquired businesses, which will follow from the optimisation ofdistribution networks and sharing of best practices. • However, as explained above, even after having achieved thesesynergies, the combined bank is still expected to generate pro forma net profitwhich is more than 25% lower than the expected net profit of each of Bradescoand Itau. Our ultimate goal remains to make at least the same profit as Bradescoand Itau. We believe this should be achievable as the combined bank will be ofcomparable scale to those banks. (see attached pdf link) (in • millions)) The combined bank is expected to have a cost/income ratio of around 55% in 2007which is expected to decrease to 45% in 2009. Banca Antonveneta We believe that Antonveneta is a high quality franchise with significantdevelopment potential. It is currently the 7th largest bank by size ofdistribution network in Italy (proforma for the UniCredit-Capitalia and BPER-BPMtransaction), and the 6th largest in Northern Italy (on the same basis), wherethe bank's business is focused. Antonveneta is a commercial bank headquartered in Padua (Veneto) with operationsacross Italy but with its core operations in the North East of Italy,principally Veneto and Friuli. Antonveneta's share of loans and deposits in the Italian market is only around3% but it has strong market positions in its core regions. We are confident thatthe Antonveneta brand and its 1,045 associated branches are an excellentplatform from which to create value through organic growth and develop a strongretail banking franchise in Italy. Antonveneta has a clear bias towards retailbanking, which accounts for around 80% of its loan portfolio. It has more than1.5 million retail clients, with 600,000 cards issued, and 200,000 SMEcustomers. In addition to a good family franchise, the bank has a good coverageof SME, corporate lending and private banking. Antonveneta has critical mass in its two main home markets with deposit marketshare of 8.9% in Veneto and 6.8% in Friuli, and a good starting position inother key markets in Italy, such as Lazio (2.4%), Emilia Romagna (1.7%),Piedmont (1.3%) and Lombardia (1.1%). In summary, Antonveneta has leadingpositions in regions representing 12% of the Italian GDP and a good startingbase in regions representing another 50% of the Italian GDP and which are thecore of the Italian economy. Antonveneta has a 3.2% branch market share in Italy with just a 2.2% share inloans and 2.3% in deposits. We believe Antonveneta has significant potential toimprove its performance. Italy shares certain behavioural patterns with Spain, and it has underdevelopedareas such as retail mortgages or consumer finance and large revenue pools inareas such as SME lending or mutual funds, which allow the sector to achievegood structural profitability. Santander is already present in consumer financeand private banking in Italy. This experience confirms our positive view of theItalian market. As at 31 December 2006, Gruppo Banca Antonveneta had assets of €51.5 billion,loans of €36.9 billion and deposits of €19.7 billion. Profit after tax for the BU Antonveneta was €413 million and €192 million inpurchase accounting. Strategic rationale We are very confident about the strategic rationale for the acquisition ofAntonveneta for the following reasons: • Italy is an attractive market: - In Italy we perceive opportunities for large commercial banking revenuesthrough the combination of a large pool of savings and attractive margins andspreads. We therefore believe it is a market in which focused retail bankingwith a strong business model can achieve attractive returns. - Italian banking suffers from underpenetration of certain key retailbanking products, such as mortgages and consumer lending. These product marketsare starting to develop in Italy, which offers an excellent opportunity forbanks with expertise in these areas. - A combination of healthy top line growth and efficiency improvements isenabling the Italian banking system to deliver healthy earnings growth. Thisview is supported by a recent independent report by JP Morgan which suggests thesix largest Italian banks will enjoy growth in adjusted EPS in excess of 15%,with three banks reaching 20% adjusted EPS. • We know the Italian market well: We have had a significant presence in Italy since taking a stake in San PaoloIMI on its privatisation. This has given us an excellent introduction to theItalian market and assisted our entry into consumer finance in the country. Ofparticular note are: - Our close alliance with San Paolo IMI for 11 years. We have developedseveral joint ventures with San Paolo IMI, notably Finconsumo and AllFunds,which have both yielded strong results; - Our operations in the Italian consumer finance market through Finconsumoand Unifin. In 2003, we agreed to buy the 50% stake in Finconsumo we did not ownfrom San Paolo IMI. In January 2004, we completed the transaction. In 2006, webought 70% of Unifin, a company specialised in consumer lending secured by thecustomer's salary or pension; - Our recent acquisition of KBL Fumagalli Soldan, a small private bankingbusiness in Italy, from KBL. • Antonveneta is an attractive franchise with significant potential: - Antonveneta has a strong retail banking franchise, especially in some ofthe affluent regions in the North of Italy. We believe it is well placed tobenefit from the long-term growth opportunity that the Italian market offers; - We feel Antonveneta has significant potential and that it offers anexcellent platform from which to grow organically. Although in Italy as a wholeits market share is below 5%, it has strong positions in core regions; - The strength in core regions is important as it is this that wetraditionally analyse as a basis for developing retail banking and, in absoluteterms, Antonveneta's size is similar to Banesto and it is somewhat bigger thanSantander Totta. Therefore, we think it has an adequate critical mass to reachlevels of efficiency and profitability in line with the other retail bankingoperations in our Group; - Once our scalable IT system will be in place, we will be in an excellentposition to expand our presence in Italy at limited cost. Transaction benefits We believe we can add significant value to Antonveneta. We believe we canimprove both Antonveneta's commercial performance as well as its operatingefficiency by generating cost synergies and revenue benefits. Cost synergies We believe that there is significant potential to improve Antonveneta'soperating efficiency. (see attached pdf link) As the above table illustrates, the percentage of revenues represented bygeneral and administrative expenses at Antonveneta is more than 6% above ourleast efficient Continental European retail banking operation and more than 12%above the most efficient one. We believe that this is due to a combination of a well-established cost culturewithin Santander and the impact of our integrated IT platform, Partenon, whichis shared by all European units of the Santander Group. It offers cost reductionbenefits through flat back office requirements, removing middle office andmultichannel distribution from inception. It also reduces the unit transactioncosts of our retail banking operations and has allowed a substantial reductionin maintenance costs. We are confident that the Partenon platform is fully adaptable to handle therequirements of the Italian market. As demonstrated in our integration of Abbey,the implementation of Partenon IT system and our cost-conscious culture allow usto substantially improve the operating efficiency of banks we acquire. We haverestructured Abbey's operations and implemented Partenon whilst simultaneouslyimproving Abbey's commercial performance. We expect the same to be true withAntonveneta. Abbey's efficiency ratio has improved from 69.9% in 2004 when Santander acquiredthe bank to just under 51% in the first quarter of 2007, an improvement ofnearly 20 percentage points in just nine quarters. We have achieved this througha combination of improved commercial performance and improved commercialefficiency. Specifically, we believe Antonveneta can achieve a significant reduction inadministrative costs once Partenon is fully implemented and Antonveneta startssharing the Group's operating platforms. (see attached pdf link) The improvement of administrative efficiency at Antonveneta would have threepillars: Improving efficiency through best practices across the Santander Group The initiatives for improving efficiency by applying best practices across theSantander Group (i.e. ordinary cost cutting) would include: - IT & operations rationalisation: banking operation and communication rationalisation, revisiting outsourcing contracts, cancellation of non-critical projects, etc. - Tighter management of contracts to reduce costs to Santander level; - Channel structure optimisation (branches, contact centres); - Marketing and product rationalisation and simplification; and - Headcount optimisation, if necessary. There is clearly scope for improvement within Antonveneta, which has 9.8employees per branch, compared to 8.4 in Santander Totta, 6.7 in Santander Spainand 5.7 in Banesto. IT consolidation IT consolidation initiatives would include: - Implementation of Partenon; - Data processing centre consolidation; and - Server consolidation. Consolidation of support functions Support functions centralisation initiatives would include: - Back-office functions and IT services outsourced in global Santander Group; - Integration of purchasing activities; and - Partial consolidation of other support functions (i.e. HR and finance). Revenue synergies We intend to take full advantage of growth opportunities. We have identifiedthree main opportunities for organic growth within Antonveneta: Improving Antonveneta's commercial performance - We believe ABN AMRO has not been able to take full advantage of theopportunities available to Antonveneta for revenue growth. - We are confident Antonveneta could benefit from our commercial practicesand our retail product development skills, particularly in areas such as retailasset management, in which we have a well-tested expertise. - We also believe that Antonveneta has market shares which are lower thanthey should be in mortgages and mutual funds. We believe that growth potentialin these areas is very high and they are areas in which we hold a very strongposition (top 3 in Europe by residential mortgage loan book). - We expect the implementation of Partenon to have a positive impact on thecommercial performance of Antonveneta. Partenon will reduce the operating /administrative burden on branch staff and effectively increase the timeavailable for customer-facing / sales activities. We have experienced thiseffect in all business units in which Partenon has been implemented. Leveraging Santander's global units We believe that Antonveneta will benefit from the capabilities of Santander'sglobal units in several segments, such as Cards, Insurance, Asset Management,Private Clients and Consumer Lending. There is a clear potential forcross-selling of credit cards or insurance-related products through theAntonveneta network of customers. In addition, the Global Wholesale Bankingcapabilities of Santander can be used to develop a treasury / derivative-basedoffer for SME customers. Our commercial banking business model is based on two lines: first, we seek tobuild the best possible local distribution organisations, which are commerciallydriven and very cost conscious. Second, we require our global business managers(responsible for credit cards, wholesale banking, asset management andinsurance) to work permanently with our commercial distribution networks toimprove the sales performance, product innovation and cost management of ourlocal banks. We are confident our global business units can significantly improveAntonveneta's corporate business in Northern Italy by leveraging Santander'sskills, particularly given that Antonveneta's corporate clients are typicallythe kind of clients that Santander is accustomed to serving in Spain and LatinAmerica. We also think we can significantly improve the credit card business andcross selling of saving and insurance products to ratios similar to thoseprevailing in the rest of the Santander Group. Expanding the franchise organically We believe that Antonveneta offers an excellent platform from which to groworganically. We believe the current competitive situation in Italy (with atleast four major groups focused on their own internal integration) offers atremendous opportunity to gain market share. We have substantial experience in opening branches. Over the past twelve months,we have added (on a net basis) more than 380 branches in Spain and Portugal. We believe there is an opportunity to expand Antonveneta's branch network asother banks integrate their own networks and close down branches. Our experiencein Spain and Portugal proves that we can successfully open small branches, withlow marginal costs, without losing control of our overall cost base These plans suggest we can generate cost synergies of about €150 million andrevenue synergies of about €60 million. Even after these synergies, Antonvenetashould have further potential compared to other similar franchises in terms ofnet profit per branch. (see attached pdf link) (amounts in • millions) ABN AMRO Interbank and DMC Consumer Finance The Interbank business is active in consumer finance in Holland, through aproprietary and third party broker distribution network. The business will be integrated into the Santander Consumer structure. We expectthis combination to yield around €5 million of cost synergies following theapplication of the best practices of the Santander Group (which has anefficiency ratio of around 35%, which is one of the best in the sector) and byusing the Interbank distribution network to distribute Santander products. Wealso expect to generate around €5 million net revenue synergies by distributingall Santander products through Interbank's (including DMC's) networks. Santander Consumer Finance is present in 14 countries globally and has more than9 million customers. It operates mainly in Europe and the United States andalready has activities in the Netherlands in car financing (both new vehiclesand second hand vehicles) and a Stock Finance business line. Financial impact of the transaction We expect the transaction to meet our financial acquisition criteria (which areEPS accretion plus return on investment above our cost of capital within threeyears) by the end of 2010, by which time we expect the synergies discussed aboveto be fully integrated in our profit and loss account, as follows: • EPS impact to be +1.3% in 2008, +3.8% in 2009 and +5.3% in 2010; and • Return on Investment in excess of 12.5% by 2010 and a ROI in excess of 10.5% by 2009*. *Note: ROI calculated as Expected 2010 earnings (including synergies) divided byconsideration of ABN AMRO Businesses plus NPV of amortisation of Antonvenetaacquired intangibles. For the benefit of transparency, we have chosen to allocate the total priceacross different assets we are acquiring. The split is as follows: (see attached pdf link) (1) Assumes total value of shared assets: €3.6 billion(2) (Valuation + NPV of intangible amortisation) / net income Stake in shared assets We have assumed a total valuation for the shared assets of approximately €3.6bn,as agreed with the other Banks. LatAm We have assigned a valuation of €12 billion to the Latin America business thatSantander is keeping. The valuation compared favourably both in terms of PEafter synergies and in terms of franchise value multiples. Overall, includingthe announced synergies, we expect a ROI in 2010 above 13.5%. In addition to the short term (i.e., 2007-2010) announced synergies, we expectlong term revenue benefits resulting from taking full advantage of the combinedgroup's scale and market position. (see attached pdf link) Source: FactSet prices as at 25 May 2007 (1) Based on valuation for Banco Real of €12.0bn; P/E proforma calculated assuming net income including fully-phased synergies of €1,291m; Banco Real multiples not included in average(2) Includes PABs Antonveneta We have assigned a €6.64 billion valuation to Antonveneta. This represents 14.8xconsensus net profit estimates for 2007 and 11.2x pro forma net profit for 2007,including 100% of the announced synergies. Overall, including the announced synergies, we expect a ROI in 2010 above 10.5%.This ROI has been calculated as net profit 2010 (including synergies) /valuation assigned plus Net Present Value of acquired Antonveneta intangibles.We believe that this measure best captures the financial return of theacquisition of this asset. In addition to achieving the announced synergies by 2010, we expect accelerationin Antonveneta's long term (i.e., post-2010) earnings growth as it takes fulladvantage of the implementation of our IT system and our medium-term franchiseexpansion plans start to take effect. (see attached pdf link) Note: Antonveneta intangibles - we have estimated the after-tax cost of assumingthese intangibles (which ABN AMRO capitalised at the time of the Antonvenetaacquisition) at €700m. (see attached pdf link) Source: FactSet prices as at 25 May 2007; companies; (1) Based on valuation for Antonveneta of €6.64bn; P/E proforma calculated assuming net income including fully-phased synergies of €594m; Antonveneta multiples not included in average(2) Branches in Italy except for Intesa Sanpaolo (total number of branches) Interbank (consumer finance) We have assigned a valuation of €210 million to Interbank (which includes DMC),ABN AMRO's consumer finance operation in the Netherlands. We believe that onceInterbank is fully integrated into the Santander Consumer structure, it candeliver a ROI in excess of 12% in 2010. Funding and financial impacts Santander intends to finance the acquisition from a mixture of financialsources. • We expect to finance 51% of our proportion of the consideration payableunder the Offer (€10.2 billion) through a balance sheet optimisation exercise.This will include increased leverage of the capital base of the combined entity,acceleration of our securitisation plans and asset disposals (including stakesin our industrial portfolio). We are committed to maximising the proportion ofthis component within our total funding while, at the same time, maintainingcomfortable capital ratios. Our target is to reach a 5.3% core Tier 1 ratio oncethe transaction is completed, with a firm commitment to move this ratio closerto current levels (approximately 6%) within a reasonable timeframe. We willissue hybrid capital in order to comply with all relevant regulations. • We plan to finance the remainder (49%) of our proportion of theconsideration payable under the proposed Offer (€9.7 billion) through theissuance of convertible securities and a rights issue. (see attached pdf link) (amount in • billions) Our involvement in the proposed transaction meets our financial acquisitioncriteria since it will be earnings accretive at a Group level as early as 2008(we expect an EPS accretion in year 1 of +1,3% and 5,3% in 2010) and Return onInvestments (ROI) exceed our cost of capital in 2009. * * * Enquiries SANTANDERInvestor Relations: Angel Santo Domingo +34 91 259 65 14Press: Peter Greiff, Angela Roche +34 91 289 52 21 Financial Adviser to the Bank and Underwriter among other banks MERRILL LYNCH INTERNATIONAL +44 20 7628 1000Andrea OrcelRichard Slimmon Communications Adviser MAITLAND +44 20 7379 5151Angus MaitlandMartin Leeburn Investor and Analyst Information PRESENTATION TO ANALYSTS AND INVESTORS A meeting for analysts and institutional investors will be hosted by AlfredoSaenz, Santander Chief Executive. • Venue: 280 Bishopsgate, London, EC2M 4RB • Date & Time: 29 May 2007 11.30am - 12.30pm (BST) (12.30pm - 13.30pm (CET)) for a prompt start. Please note, as seating is limited, it may be necessary to restrict the numberof attendees from each institution. • Slide presentation packs will be available on Santander's website shortly If you are unable to attend the meeting in person, you can listen through any ofthe following options: • A live webcast of the event available on: - www.emincote.com/consortium001/default.asp - Details will also be available on the Santander website • www.santander.com • A live conference call by dialling: - UK Toll: +44 207 138 0811 - UK Toll free: 0800 028 7847 - US Toll: +1 718 354 1193 - US Toll free: 1888 893 9532 - Spain Toll: +34 914 533 434 - Spain Toll free: 800 099 465 - Netherlands Toll: +31 20 713 2789 - Netherlands Toll free: 0800 026 0068 • There will be a replay facility on the investor presentation. This canbe accessed by dialling: - UK Toll: +44 207 806 1970 - UK Toll free: 0800 559 3271 - US Toll: +1 718 354 1112 - US Toll free: 1 866 883 4489 - Spain Toll: +34 917 889 869 - Netherlands Toll: +31 20 713 2791 - Netherlands Toll free: 0800 027 0028 - Passcode for replay: • English: 4945328# • Spanish: 3089460# The webcast provides an opportunity to listen remotely to the live presentation.You may join in the Q&A presentation by using the live conference call. Press Information PRESS CONFERENCE Santander will hold a press conference for members of the media. The press conference will be hosted by Alfredo Saenz, Santander Chief Executive. The details of the press conference are as follows: • London Venue: 280 Bishopsgate, London, EC2M 4RB• Date & Time: 29 May 2007 2.00pm - 3.00pm (BST) (3.00pm - 4.00pm (CET)) If you are unable to attend the meeting in person, you can listen through any ofthe following options: • A live webcast of the event available on: - www.emincote.com/consortium001/default.asp - Details will also be available on the Santander website • www.santander.com • A live conference call by dialling: - UK Toll: +44 207 138 0811 - UK Toll free: 0800 028 7847 - US Toll: +1 718 354 1193 - US Toll free: 1888 893 9532 - Spain Toll: +34 914 533 434 - Spain Toll free: 800 099 465 - Netherlands Toll: +31 20 713 2789 - Netherlands Toll free: 0800 026 0068 • A live video conference for journalists in Madrid. - Please call +34 289 5221 for information • There will be a replay facility on the media call. This can be accessed by dialling: - UK Toll: +44 207 806 1970 - UK Toll free: 0800 559 3271 - US Toll: +1 718 354 1112 - US Toll free: 1 866 883 4489 - Spain Toll: +34 917 889 869 - Netherlands Toll: +31 20 713 2791 - Netherlands Toll free: 0800 027 0028 - Passcode for replay: • English: 4270111# • Spanish: 9849777# • The webcast provides an opportunity to listen remotely to the livepresentation. You may join in the Q&A presentation by using the live conferencecall. • Broadcast media who wish to access live transmission for the pressconference should contact the respective press offices or [email protected] for details. • Time constraints in the schedule will restrict the availability of thePrincipals for broadcast interviews. Broadcast media who wish to request aninterview should contact the respective press offices or [email protected]. Satellite links and ISDN lines are available forbroadcast interviews. • For logistical reasons, no camera teams or photographers will beallowed in the conference rooms. Important Information In connection with the proposed Offer, RBS expects to file with the Securitiesand Exchange Commission ("SEC") a Registration Statement on Form F-4, which willconstitute a prospectus, and the Banks expect to file with the SEC a TenderOffer Statement on Schedule TO and other relevant materials. INVESTORS ARE URGEDTO READ ANY DOCUMENTS REGARDING THE PROPOSED OFFER IF AND WHEN THEY BECOMEAVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors will beable to obtain a copy of such documents, without charge, at the SEC's website(http://www.sec.gov) once such documents are filed with the SEC. Copies of suchdocuments may also be obtained from each Bank, without charge, once they arefiled with the SEC. This communication shall not constitute an offer to sell or the solicitation ofan offer to buy any securities, nor shall there be any sale of securities in anyjurisdiction in which such offer, solicitation or sale would be unlawful priorto registration or qualification under the securities laws of any suchjurisdiction. This press release is not an offer of securities for sale into theUnited States. No offering of securities shall be made in the United Statesexcept pursuant to registration under the US Securities Act of 1933, as amended,or an exemption therefrom. Forward-Looking Statements This announcement includes certain "forward-looking statements". Thesestatements are based on the current expectations of the Banks and are naturallysubject to uncertainty and changes in certain circumstances. Forward-lookingstatements include any statements related to the benefits or synergies resultingfrom a transaction with ABN AMRO and, without limitation, statements typicallycontaining words such as "intends", "expects", "anticipates", "targets", "plans", "estimates" and words of similar import. By their nature, forward-lookingstatements involve risk and uncertainty because they relate to events and dependon circumstances that will occur in the future. There are a number of factorsthat could cause actual results and developments to differ materially from thoseexpressed or implied by such forward-looking statements. These factors include,but are not limited to, the presence of a competitive offer for ABN AMRO,satisfaction of any pre-conditions or conditions to the proposed Offer,including the receipt of required regulatory and anti-trust approvals, thesuccessful completion of the Offer or any subsequent compulsory acquisitionprocedure, the anticipated benefits of the proposed Offer (including anticipatedsynergies) not being realized, the separation and integration of ABN AMRO andits assets among the Banks and the integration of such businesses and assets bythe Banks being materially delayed or more costly or difficult than expected, aswell as additional factors, such as changes in economic conditions, changes inthe regulatory environment, fluctuations in interest and exchange rates, theoutcome of litigation and government actions. Other unknown or unpredictablefactors could cause actual results to differ materially from those in theforward-looking statements. None of the Banks undertake any obligation to updatepublicly or revise forward-looking statements, whether as a result of newinformation, future events or otherwise, except to the extent legally required. Merrill Lynch International, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority ("FSA"), is acting as financialadviser to Fortis, RBS and Santander and as underwriter for Fortis, RBS andSantander, and is acting for no one else in connection with the proposed Offer,and will not be responsible to anyone other than Fortis, RBS and Santander forproviding the protections afforded to customers of Merrill Lynch Internationalnor for providing advice to any other person in relation to the proposed Offer. Fortis Bank SA/NV which is authorised and regulated in Belgium by the CommissionBancaire, Financiere et des Assurances, Greenhill & Co. International LLP whichis authorised and regulated in the United Kingdom by theFSA and Fox-Pitt, KeltonLtd which is authorised and regulated in the United Kingdom by the FSA areacting as financial advisers to Fortis. Fortis Bank SA/NV, Greenhill & Co.International LLP and Fox-Pitt, Kelton Ltd are acting for no one else inconnection with the proposed Offer, and will not be responsible to anyone otherthan Fortis for providing the protections afforded to their respective customersnor for providing advice to any other person in relation to the proposed Offer.Fortis Bank SA/NV and Greenhill & Co. International LLP are acting as financialadviser in connection with the transaction and Fox-Pitt, Kelton Ltd is acting asfinancial adviser in connection with the financing of the transaction. The Royal Bank of Scotland plc, which is authorised and regulated in the UnitedKingdom by the FSA, is also acting as financial adviser to RBS and is acting forno one else in connection with the proposed Offer, and will not be responsibleto anyone other than RBS for providing the protections afforded to customers ofThe Royal Bank of Scotland plc nor for providing advice to any other person inrelation to the proposed Offer. Santander Investment, S.A., which is authorised and regulated in Spain by theBanco de Espana and the Comision Nacional del Mercado de Valores, is acting asfinancial adviser to Santander and is acting for no one else in connection withthe proposed Offer, and will not be responsible to anyone other than Santanderfor providing the protections afforded to customers of Santander Investment,S.A. nor for providing advice to any other person in relation to the proposedOffer. NIBC Bank N.V., which is authorised and regulated in the Netherlands by TheNetherlands Financial Markets Authority (Autoriteit Financiele Markten) and DeNederlandsche Bank, is acting as financial adviser to Santander and is actingfor no one else in connection with the proposed Offer, and will not beresponsible to anyone other than Santander for providing the protectionsafforded to customers of NIBC Bank N.V. nor for providing advice to any otherperson in relation to the proposed Offer. Any Offer made in or into the United States will only be made by the Banks and/or RFS Holdings directly or by a dealer-manager that is registered with the SEC. -------------------------- (1) Based on the price of RBS Shares of 642.5p at the close of business on 25May 2007 and an exchange rate of €1.00:£0.6780 as published in the FinancialTimes on 26 May 2007 and including €1.00 in cash to be retained by the Bankspending resolution of the LaSalle Situation. The terms of the proposed Offerexclude the ABN AMRO 2007 interim dividend which has been assumed to be €055.For further information, including the definition of the LaSalle Situation seeAppendix I, Other Proposed Offer Details, of the announcement relating to theproposed Offer made by the Banks today for further details (2) Based on undiluted number of shares, as set out in Appendix IV of theannouncement relating to the proposed Offer made by the Banks today and on theprice of RBS Shares of 642.5p at the close of business on 25 May 2007 (3) These estimates are based on the 2006 Annual Report & Accounts of ABN AMROadjusted for certain restructuring costs and other one-off or non-recurringitems and on the estimates of the Banks. As the reorganisation of the ABN AMROGroup as set out in the Press Release does not correspond precisely to theBusiness Unit definitions in ABN AMRO's 2006 Annual Report & Accounts, theseestimates are not audited and may not be accurate. Any inaccuracies may, inlimited circumstances, following completion of the proposed Offer, be addressedin accordance with the terms of the arrangements between the Banks, but will notaffect the terms of the proposed Offer. Further details on the calculation ofthese figures are set out in Appendix IV in the Press Release. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Banco SantanderRBS.L