Barclays agrees to buy ABN for $91 billion

LONDON/AMSTERDAM (Reuters) - British bank Barclays Plc (BARC.L) has agreed to buy Dutch rival ABN AMRO AAH.AS for about 67 billion euros ($91 billion) in shares as it attempts to fight off rivals to clinch the world's biggest bank takeover.

The deal will boost Barclays' exposure to fast growing markets in Brazil and Asia and secures a deal for ABN's management at a one-third premium to its share price before talks began a month ago. However, there remains a strong threat of a counter-offer from a rival group led by Royal Bank of Scotland (RBS.L).

ABN will sell its Chicago-based U.S. bank LaSalle to Bank of America (BAC.N) for $21 billion in cash, and the deal with Barclays will be conditional on LaSalle's sale, the banks said.

ABN Chairman Rijkman Groenink recommended the merger with Barclays as the "best option" for shareholders.

The RBS-led consortium, which also includes Spain's Santander (SAN.MC) and Dutch-Belgian group Fortis (FOR.BR), would break up ABN.

The consortium, favored by activist hedge fund TCI, a major ABN investor, had been due to meet Groenink to discuss its plans on Monday afternoon but postponed, saying they wanted more information on the deal to sell LaSalle.

Barclays said it would offer 3.225 shares for each ABN share, equivalent to 36.25 euros a share at Friday's closing price including ABN's final dividend.

It would create the world's fifth biggest bank with a market value of about $190 billion and 47 million global customers, and would fulfil Barclays' ambition to join the top tier of global banks and reduce its reliance on the mature UK market.

"The appeal of this transaction is the substantial growth opportunity it presents," said Barclays CEO John Varley.

The deal is widely seen as a test case for larger bank mergers in Europe's consolidating banking and financial sector and part of a wave of mega-bank mergers that began in the United States several years ago.

"If you're going to compete in the European or international market you must be bigger," Varley said.

Asked if he was willing to pay more in the face of a competing bid, Varley said: "We have put a good price to ABN shareholders."

Groenink said ABN's strategy has been "to build, not to break up," but said if a "serious and more compelling" approach was made he would listen to the approach.

The RBS-led group wants to mull its options after studying terms of the LaSalle sale, and has ruled out nothing, including making a hostile bid for ABN or pulling out altogether, said a source familiar with the matter.

JOB CUTS

Barclays and ABN said a merger would result in 3.5 billion euros of annual savings, largely from cost cuts including 23,600 job reductions or just over 10 percent of the combined workforce. About half of those positions will move offshore.

Analysts and investors said Barclays' offer may be too low to secure a win or exclude another bidder who could extract greater cost savings, such as the consortium.

TCI, the activist hedge fund that built pressure on ABN to consider a sale or break-up of the Dutch bank after several years of underperformance, said ABN should disclose the terms of a $200 million fee it will pay Bank of America "under certain limited circumstances" if BoA's purchase of LaSalle falls through.

"We are concerned the pre-agreed sale of LaSalle Bank unfairly hinders the RBS consortium," TCI said in a statement.

"If financial terms are the major determinant of the outcome here then Royal Bank will win," said Simon Maughan, analyst at Blue Oak Capital. "What is pretty clear is that Barclays can't go much higher. They could sweeten it but I don't think they're minded to go much higher than this," he added.

Barclays shares closed down 2.3 percent at 733 pence, cutting the value of its offer, as traders said hopes were fading it would itself become a takeover target. ABN shares rose in early trade but fell after the RBS-led group postponed its meeting and ended down 1.4 percent at 35.8 euros.

The banks said they will distribute about 12 billion euros to shareholders through buybacks after the sale of LaSalle.

Barclays' Varley and President Bob Diamond will have the same positions in the enlarged group and ABN's Arthur Martinez will be chairman. Groenink will become a non-executive director and Varley said he will move to Amsterdam.

Barclays shareholders will own 52 percent of the combined bank, which will be headquartered in Amsterdam.

A plan for the Dutch central bank to be lead regulator has been dropped and Britain's Financial Services Authority is now favored for that role.

Three unions representing about 8,000 ABN employees said they would prefer to see Barclays succeed in its bid to buy ABN, with fewer job cuts expected from a merger compared with a rival bidder's deal.

(Additional reporting by Clara Ferreira-Marques, Mathieu Robbins and Mark Potter in London)