Countdown starts in takeover bid

Bank of Scotland has lined up a £1.5 billion sterling (€2.3 billion) subordinated debt issue to back its £20.7 billion bid for National Westminster Bank.

Details of the planned issue emerged yesterday as the Scottish bank posted its formal offer document to NatWest shareholders, starting the clock on a takeover timetable that could, if no counterbidders emerge, run to December 13th. Credit Suisse First Boston and Morgan Stanley Dean Witter, Bank of Scotland's advisers, have agreed to underwrite the debt programme.

This will be needed to restore the bank's capital adequacy ratios if it succeeds in its bid, which offers 1.6 shares and a £1.20 loan note for every NatWest share.

Bank of Scotland said NatWest's shares had underperformed its own stock by 61 per cent over the last 10 years. It claimed the English bank had failed to control costs, with its cost:income ratio rising to 68.5 per cent last year from 66.5 per cent in 1988.

NatWest, which last week ousted its chief executive, Mr Derek Wanless, and installed Mr Ron Sandler, former chief executive of the Lloyd's insurance market, as chief operating officer, said it could deliver far more to its shareholders than the Bank of Scotland could offer.

Sir David Rowland, chairman and acting chief executive, said: "The offer is long on risk and short on value. The value inherent in NatWest's business belongs 100 per cent to our shareholders."

But Mr Peter Burt, Bank of Scotland's chief executive, said NatWest would not be able to cut costs by nearly as much on its own as he could achieve in a merger. Bank of Scotland has estimated that it could achieve £1.02 billion of cost savings from eliminating duplicate functions and improving NatWest's efficiency.

"NatWest shareholders will get 68 per cent of £1 billion of savings, which is a lot better than 100 per cent of £300 million," he said.

The total cost of staging the offer is estimated at £187.5 million. Of this, £105 million will be paid to the Treasury in the form of stamp duty, leaving advisers' fees and printing costs totalling £82.5 million. Bank of Scotland's shares fell 8 1/2p yesterday to 702p, valuing its offer at £12.43 per NatWest share. NatWest fell 25p to £14.04.

NatWest's share price has remained well ahead of Bank of Scotland's offer, sustained partly by the hope of a higher bid from Royal Bank of Scotland or, possibly, Abbey National.