AMSTERDAM/LONDON Britain's Barclays Plc hired Citigroup Inc as an advisor on its bid talks with ABN AMRO, sources familiar with the matter said on Wednesday, effectively ruling the U.S. group out of counterbidding for the Dutch lender.
Citigroup had been seen by analysts as among the most likely international banks to bid for ABN AMRO, or even to make an offer for Barclays (BARC.L), and the move could represent a tactical victory for the UK bank in its attempt to secure the world's biggest ever bank takeover.
The move came as ABN AMRO AAH.AS urged shareholders to reject plans by a hedge fund to break-up or sell the company. Citigroup (C.N) will join other advisers to Barclays that include Credit Suisse, Deutsche Bank, J.P. Morgan Cazenove and Lazard.
Newspapers including the Wall Street Journal have reported that executives at Citigroup were pressing the bank's chief executive, Chuck Prince, to make a counterbid for ABN AMRO.
But advising Barclays effectively rules out the New York-based bank from making an offer for the Dutch lender, as it would be acting in conflict with its own client.
Barclays hired Citigroup due to the strength of its financial services advisory team, which has worked on other deals such as NYSE Group's NYX.N acquisition of European rival Euronext ENXT.PA, one of the sources said.
Citigroup and Barclays declined to comment.
If Barclays, Britain's third biggest bank, seals a deal with ABN it would create a group with a foothold in markets including Asia, Latin America, Europe and the United States.
ABN said it gave shareholders the green light to vote next month on proposals by hedge fund TCI, including a break-up, sale or merger, but talked up the benefits of its potential deal with Barclays.
"We do not believe the interests of our shareholders would be best served by the mere short-term cash generation actions embodied in the proposals that TCI has put forward for consideration," ABN said.
The Amsterdam-based bank said it would put the hedge fund's proposals to a vote at its April 26 shareholders meeting.
ABN and Barclays announced they were in exclusive talks earlier this month after ABN came under pressure from activist investors, including TCI, to consider a sale or break-up to boost shareholder returns after years of underperformance.
ABN said it would consider alternatives if the Barclays talks fail. Sources familiar with the matter have told Reuters the company is exploring the sale of stakes in emerging market banks as it seeks to return cash to shareholders as an alternative to the TCI proposal.
Stakes in banks in the Middle East and Latin American markets such as Saudi Arabia, Ecuador and Mexico are among those that could be sold, the sources said.
The plan would allow the bank to keep its larger foreign assets in Italy, the United States and Brazil, which contribute to its profit and growth, the sources added.
A month ago TCI requested shareholders vote on five proposals: breaking up, selling or merging the bank's businesses; returning any proceeds to shareholders; selling the entire bank; to report back on the initiatives; and cease making any major acquisitions for six months.
A spokesman for TCI said the fund was reviewing ABN's statement and agenda for the meeting, but had no comment.
TCI's March 21 letter was followed by news of talks between Barclays and ABN. The two have outlined a framework for a merger for a combined bank that would be listed in London, headquartered in Amsterdam and have its two top jobs split.
ABN, which is targeting growth outside its mature market in the Netherlands, bought Italian bank Antonveneta last year.
The costs of integrating Antonveneta and the struggle to extract profits from far-flung businesses in Brazil, North America and Asia, have weighed on ABN's share price. TCI had argued that ABN's share price lagged behind its peers.
But ABN's shares are up about 20 percent to near lifetime highs since TCI made its proposals.
Goldman Sachs estimates that Barclays would offer 35 euros per ABN share, including 5 euros in cash, "in order to seal the merger and reduce the potential for a counterbid". ABN shares were down 1.2 percent at 31.96 euros at 0949 GMT.