NatWest to sell or float its Ulster Bank operation


A bidding battle for Ulster Bank is expected to get under way quickly following the announcement that its troubled parent, NatWest, intends to sell or float the bank on the stock market.

Strong interest is expected in the profitable all-Ireland banking group, which generated pre-tax profits of £155 million sterling for 1998 followed by £82 million sterling for the first six months of 1999. A price tag of £2 billion (€2.54 billion) to £2.5 billion has been suggested by market analysts.

NatWest yesterday played down speculation that Ulster's operations in the Republic and Northern Ireland may be sold separately. A spokesman insisted that the bank had no intention of breaking up the Ulster operation ahead of a sale. "There would be no logic to that. Ulster's strength is that it covers all of the island."

But as the flotation/sale process continues, NatWest's determination to get the highest price could result in the splitting of the operations. Or the operations could be split by the successful bidder after the sale.

Among the potential bidders, Irish Life and Permanent has confirmed its interest and has appointed corporate finance advisers - Shroeders and DLJ Phoenix. Its managing director, Mr David Went, is a former Ulster Bank chief executive and the bank-assurer has made no secret of its ambitious growth targets in the Irish market. But IL&P may not be interested in Ulster's operations in Northern Ireland.

Other potential bidders include National Australia Bank, the parent of National Irish Bank, Bank of Ireland, AIB, the Irish Intercontinental Bank parent Kredietbank, ABN AMRO and a number of EU banks which have no existing operations in the Irish market.

The announcement that NatWest is to sell off or float Ulster Bank is not unexpected. For years a strong contributor to the troubled National Westminster Bank - it paid a dividend of £56 million sterling to NatWest last year - the Irish bank has become an early pawn in its parent's defence against the hostile bid from the Bank of Scotland.

The process which has put Ulster Bank on the market started in September when Bank of Scotland launched a surprise hostile bid for NatWest. At that time NatWest was well advanced in its plans to take-over the insurer Legal and General, a move which was not well received in the market.

This planned take-over, which followed a series of setbacks, called into question Natwest's strategic direction and the capabilities of its top management. It left the bank ripe for the hostile bid from Bank of Scotland, which said it would sell Ulster Bank.

In its defence document released yesterday and aimed at increasing NatWest's focus on its core business to maximise shareholders' value, the group announced plans to divest four noncore businesses, including Ulster. NatWest said preparations have begun to list Ulster as a separate company on the London Stock Exchange, while at the same time the NatWest board will conduct formal discussions with buyers who have expressed an interest in Ulster. For NatWest the aim is to secure the best return for its shareholders and whichever process secures this aim will be pursued.

NatWest adviser Mr John Williams, of Dresdner Kleinwort Benson, said there was no defined timetable. "We will move as quickly as possible without compromising getting the maximum value for shareholders," he said. The choice between sale or flotation would become clear as the process moves ahead, he added.

So far there had been "a number" of expressions of interest and more were expected, he said, adding that he was "very pleased with the degree of interest so far". A sale process is likely to involve a number of rounds, with a short-listing and final bid following the assessment of preliminary bids.

Ulster Bank chief executive Mr Martin Wilson described the decision to float or sell Ulster as a stand-alone business as an acknowledgement of the strength and the value of the business and as "a tribute to successive generations of staff and management". Ulster had an excellent customer franchise, well motivated and skilled staff, a track record of growth and profitability and a co-ordinated, highly focused all-Ireland business, he said. On speculation that the bank may be sold in two parts - splitting the operations in the Republic and in Northern Ireland - he commented that "the logic of splitting the business is not immediately obvious to me. The value is in the brand as one business, so I think there is a higher probability that Ulster Bank will be sold as one entity".

NatWest chairman and chief executive Sir David Rowland described Ulster as "an extremely attractive business". But he said it "no longer fits with our strategic focus".

"Our objective is to enable shareholders rapidly to realise the value of their ownership of Ulster Bank but without compromising on the ability to secure fair value."