BoS mulls raising its bid for NatWest to pounds 15 a share

BANK OF SCOTLAND was yesterday believed to be in discussions with investment bankers over ways of raising extra funding to launch an increased hostile bid for National Westminster Bank.

City sources said that the increased bid could be pitched pounds 15 per share, valuing NatWest at pounds 24.5bn. Market speculation claimed that Bank of Scotland met with Salomon Smith Barney, Credit Suisse First Boston and Morgan Stanley yesterday regarding the underwriting of an additional pounds 2.5bn of capital to back an increase in its takeover bid.

Credit Suisse First Boston's Mark Seligman and Morgan Stanley's Michael Tory, both of whom are advisers to Bank of Scotland, were apparently involved in the discussions which were chaired by Salomon Smith Barney investment banker David White. Mr Seligman would not comment on the discussions. Mr White and Mr Tory were not able to comment either. An increased bid would take the offer closer to the level City fund managers feel would be required to stand a chance of succeeding. Bank of Scotland is keen to raise the pressure on its target, as its arch rival, Royal Bank of Scotland is keeping its options open on a bid for NatWest itself.

However, banking analysts questioned whether Bank of Scotland would raise its existing pounds 22bn bid to pounds 15 per share given that Royal Bank has suggested it would be willing to offer pounds 16 per share. "They [Bank of Scotland] might be testing the water to see how the market will react," one said. Bank of Scotland's existing bid was launched in September and offers 1.6 Bank of Scotland shares and a loan note worth 120p, valuing NatWest at pounds 13.18 per share. Bank of Scotland declined to comment on its intentions. But NatWest said the leak of the discussions was embarrassing for Bank of Scotland and went on the offensive against Bank of Scotland's chief executive, Peter Burt. "Bank of Scotland appears to be struggling to get its act together. This seems to be a case of yet more lead in Mr Burt's foot," a spokesman said

Analysts commented that if Bank of Scotland did raise its bid it would need to leave itself headroom for a further increase in case RBS decides to launch a counter bid. RBS does not have to make its mind up until the Office of Fair Trading rules on the bid battle. Its decision is not expected until early next year.

Bank of Scotland has said it could achieve cost savings of pounds 1bn through the merger of its own operations with those of NatWest. In its defence NatWest has said it would sell four businesses including Gartmore asset management and Ulster Bank. It also plans to make further cuts at its head office and strip out layers of management to reduce costs and speed up decision-making.

NatWest shares closed 10p higher at 1387p yesterday though this was before talk of a raised bid surfaced. Bank of Scotland shares were 5p higher at 748.5p.