Merrill's Big Gamble Pays Off

When investment banks rushed for mandates from Britain's Barclays or Dutch target ABN AMRO when takeover talks began this spring, one big name was absent: Merrill Lynch.

The bank's financial institutions team -- then led by Andrea Orcel -- decided to sidestep the crowd and go for an ambitious alternative.

Merrill was to become sole adviser to the Royal Bank of Scotland-led consortium that is poised to win control of ABN this week after a months-long takeover battle.

Barclays' UK rival, RBS, and Spain's Santander, had both separately held talks with ABN about buying some of the bank's businesses. They had also discussed a joint bid, according to a U.S. filing.

Orcel, 44, a half-French, half-Italian banker who grew up in Rome, had advised Spain's Santander on its purchase of Abbey National in 2004, then the biggest cross-border banking deal.

His Merrill colleague, Matthew Greenburgh, Chairman of Merrill's Financial Institutions Group, had meanwhile built a close relationship with RBS after advising it on several deals.

Other senior Merrill bankers including Henrietta Baldock and Richard Slimmon also worked around the clock on the deal.

TAKING A GAMBLE

Orcel and Greenburgh realized that Barclays' mostly-shares bid, then expected in the low 30 euros per ABN share, would stretch the UK bank's finances and try the patience of its investors.

Barclays had few synergies from buying ABN that it could use to justify raising its offer, to keep up with the market.

If there was a way someone could bid more than 35 euros per share, Orcel was confident Barclays would not be able to meet the challenge. He also knew ABN AMRO's disgruntled investors, who precipitated sale talks in the first place, could force ABN AMRO's management to consider a rival offer.

So far no single bank had been willing to counterbid for all ABN's assets -- a mix of businesses spread around Europe, North America, Brazil and Asia.

But in a consortium, each member could contribute cost cuts to the parts of ABN they planned to buy, pushing up the price they could collectively afford.

Orcel brought with him experience of such complex transactions, having worked on the 1998 merger of eight Italian banks to help create what is today Unicredit.

Royal Bank of Scotland and Santander had already worked together on several previous transactions as early as 1988.

RBS, which originally planned to buy ABN's U.S. operations, had a presence in North America and could cut costs there. Santander could trim fat in the bank's South American and possibly its Italian operations.

The final piece of the puzzle was Belgian-Dutch bank Fortis , which Merrill had provided financing to and had advised during the 2006 combination of its investment management unit with Cadogan Investments.

Fortis would be able to cut costs in ABN AMRO's retail bank and help the trio argue to a possibly hostile Dutch establishment that the consortium created a Benelux champion -- unlike the all-British Barclays offer.

Merrill had RBS and Santander lined up and then they contacted Fortis, said a source close to one the three bidding banks.

Orcel is described by colleagues as a workaholic with a talent for getting through to top executives.

He is very driven and he drives people very hard -- he does work very hard, said one colleague, adding What he is very good at is being a trusted adviser to senior chairmen of banks across Europe.

The willingness of the three chief executives to work together allowed them to outbid Barclays and hit the high 30s euros per share that Orcel was aiming for and get the world's biggest banking M&A deal off the ground.

Orcel was Merrill's Global Head of Financial Institutions early in the deal process. In June he became the bank's ideas man as Head of Global Origination.