ABN withdraws backing for Barclays bid

AMSTERDAM (Reuters) - Dutch bank ABN AMRO AAH.AS formally withdrew its recommendation of a takeover offer by Barclays (BARC.L) but made clear it still favors the British bank's offer over a higher bid from Royal Bank of Scotland's (RBS.L) consortium.

The Netherlands' biggest bank, the target of a 64 billion-euro ($87.4 billion) offer from Barclays and a 70.6 billion-euro bid from RBS, Belgium's Fortis (FOR.BR) and Spain's Santander (SAN.MC), also reported a 7.1 percent decline in its second-quarter net profit on Monday.

ABN originally backed Barclays when announcing their merger in April, in a friendly deal that would have kept ABN mostly intact and the combined group's headquarters in Amsterdam, but withdrew its recommendation even after Barclays sweetened its all-share offer last week to include some cash.

But ABN did not endorse the rival RBS consortium's mostly cash offer, saying Fortis faced a challenge in raising the capital needed to fund its part of the bid for ABN.

"We continue to support Barclays' offer because we feel overall Barclays' merger plan is to the benefit of all stakeholders," Chief Executive Rijkman Groenink told reporters, but added ABN was taking a neutral stance on the competing bids.

"The consortium's offer is uncertain. There is the Fortis shareholders meeting that has to approve the share issue," Groenink said.

Fortis shareholders are due to vote next week, on August 6, on a key rights issue to raise the cash.

Barclays said it will continue with its bid and waived a pre-condition of its latest offer that ABN recommends it.

Under takeover rules ABN could still make a fresh recommendation but is not required to do so.

"We are confident that our revised offer delivers the value, stakeholder benefits and certainty that will allow the boards to support a recommendation in due course," Barclays Chief Executive John Varley said in a statement.

ABN could move to recommend either bidder, depending on how the consortium's financing shapes up and whether the Barclays share price rises to improve the value of its bid.

ABN's shares were up 0.6 percent at 35.09 euros at 0957 GMT, while Barclays was down 1 percent at 675 pence and the DJ Stoxx European banking sector index .SX7P was down 0.18 percent.

The RBS-led offer, which would result in a break-up of ABN, is 93 percent in cash and worth 38.08 euros per ABN share at Monday's market prices, compared with Barclays' bid at 34.4 euros per share. ABN has 1.855 billion shares outstanding.

RBS said it noted ABN's statement but had nothing to add.

Barclays sweetened its offer with a cash portion, as China Development Bank and Singapore's Temasek took stakes in the bank, but its offer remains mostly in shares, and therefore vulnerable to recent market turbulence.

SECOND-QUARTER PROFIT DOWN

ABN also reported on Monday it made a net profit of 1.13 billion euros in the second quarter, down from 1.216 billion euros in the same period last year but ahead of the average forecast of 1 billion euros given in a Reuters survey of five analysts.

The figures exclude discontinued operations and include a 208 million-euro gain on disposals.

On a per-share basis, ABN reported earnings of 0.61 euro per share, and 0.50 euros per share from continuing operations.

Operating profit rose 12.8 percent to 5.45 billion euros.

ABN said it was on track to reach its goal of posting earnings per share of 2.30 euros for 2007, adjusting for disposals.

But ABN said that market conditions remained challenging, partly due to the ongoing takeover battle, and that its Italian unit Antonveneta would likely miss its 500 million-euro profit target for 2007.

"The bank will be extremely challenged to reach the promised 2.30 euros earnings per share," Petercam analyst Ton Gietman said in a note.

ABN increased its interim dividend to 0.58 euros, up 5.5 percent.

(Additional reporting by Steve Slater in London and Gilbert Kreijger in Amsterdam)