Activist fund hedges its bets and forces a bank’s hand

by Vanita Trippe, March 30th, 2007, 7:00 am

When is a hedge also a lever? When it’s the compelling force behind what could ultimately be the largest bank merger in European history.

Christopher Hohn and The Children’s Investment Fund (better known as TCI) have leveraged the hedge fund’s 1% stake in ABN AMRO into a big honking (presumed) deal that’s making headlines all over the business world: Barclays‘ planned acquisition of the Netherlands-based international banking concern.

TCI takes its name from the fact that a portion of its proceeds each year go to the TCI Fund Foundation, a major UK charity. But TCI’s philanthropic side is matched with an activist bent. The hedge fund — dissatisfied with ABN AMRO’s poor shareholder returns — invoked a company rule allowing it to demand that the bank’s April general meeting include motions to break up or sell ABN AMRO. TCI is said to have received backing from several institutional ABN AMRO shareholders, as well.

The demands prompted ABN AMRO to come forward with news that it was in exclusive acquisition talks with Barclays (earlier discussions with Dutch rival ING apparently having failed).

At this point, it’s anyone’s guess how the planned cross-border acquisition will fly, but there are several things that most analysts agree on:

1. Activist hedge funds are gaining power in the world of Euro business. TCI’s demands of ABN AMRO are just one of several hedge-fueled situations simmering in the UK or on the continent. This is certainly not TCI’s first time in the activist driver’s seat, either; the hedge fund was instrumental in ousting Werner Seifert as CEO of the Deutsche Börse after it twice failed to buy the London Stock Exchange.
2. ABN AMRO will be sold, it’s just a matter of when, to whom, and whether in whole or in part. There may be bigger, richer, and more attractive suitors waiting in the wings once Barclays’ exclusivity period ends, and TCI is determined to push for the highest return to shareholders.
3. A failed attempt to acquire ABN AMRO will likely leave Barclays itself as a prime acquisition target.

Stay tuned.