RBS and ABN AMRO Acquisition: Failed Merger Case Study

Introduction

When analyzing the mergers and acquisition case of Royal Bank of Scotland (RBS) and ABN AMRO, one must examine this case through many different lenses. Any time one giant organization seeks to gain control of another large organization by applying a mix of forceful acquisition strategies, a complex and dynamic stage inherently emerges in which monetary speculations, cultural dynamics, knowledge management, business process re-engineering, and risk management all account for the various actors involved. These actors, and many more that remain unlisted, all intertwine in the case of mergers and acquisitions to shape the success or failure of such ventures in both the long and short run.

Not only are these factors dynamic in nature, but they are also subject to human judgment and interpretation. Though objectivism is always the goal of any professional, subjective influences are nearly completely unavoidable, especially for practitioners that must operate under the burdens of deadlines. Heuristics must be relied upon frequently, and the luxuries of having ample planning resources are uncommon at best. Even with proper planning, the plan must nearly always fluctuate dynamically in time to achieve the moving target that represents success. It is nearly impossible to conceive of a plan of such a scale that could account for all the variables in a complex environment.

These challenges represent many of the issues that RBS faced when entering into the acquisition process in this particular instance, as it had done so several times in the past. Sir Fred Goodwin, the leader at the helm during the duration of the acquisition, said after the acquisition was already initiated: "The acquisition of the ABN AMRO Businesses remains compelling from a financial point of view, as evidenced by the fact that it produces essentially the same earnings enhancement for the Group, despite the smaller size of the transaction. From a strategic perspective, whilst we would have preferred to acquire LaSalle as well, the businesses we are acquiring open up many new markets and growth opportunities, enabling us to significantly accelerate our strategic development." It is evident from this statement that the leader championed the acquisition because of its perceived value to RBS. This paper will examine the scope of this endeavor from several perspectives and discuss the reasons why the leader's vision and the context in which the decision was made failed to manifest into reality for the RBS organization.

The role of CEO does not always provide the leader with as much freedom in decision-making as one might expect. Both the corporate culture and the board of directors act to set boundaries on the locus of control that a leader has. Although a CEO has more resources at their disposal than many positions provide, a chief executive cannot act without regard to the environmental boundaries that exist in any organization. Furthermore, the market itself places pressure on leadership to react to the external pressures produced by competition. For example, ABN AMRO stood subject to acquisition in the first place because of stagnant growth in its operations.

RBS Culture and Organizational Momentum

Once a corporate culture has established itself, it carries with it a momentum that is difficult to reverse. RBS had built a culture of expansion through acquisition at the turn of the century, led by Sir Fred Goodwin. Under his leadership, RBS managed to acquire through merger the control of NatWest, which at the time of acquisition was nearly double the size of RBS (Skinner). Following the NatWest venture, RBS made a number of other successful acquisitions including Churchill Insurance, Charter One Bank in the United States, and also a large stock acquisition in the Bank of China. From examining the history of RBS ventures, a clear trajectory of extremely ambitious growth emerges.

Though Sir Goodwin received much of the credit for earlier successes that exponentially increased RBS's market share and allowed expanded access to foreign markets, he by no means acted alone. To achieve such massive growth required the entire organization to act toward a shared goal. This transformational organizational effort undoubtedly built a corporate culture of its own, with its own momentum—a momentum of rapid growth through acquisitions and mergers. If an analysis had been conducted prior to the ABN AMRO venture, it is reasonable to speculate that the analysis would have included a prediction of a merger and acquisition in the near foreseeable future.

Also adding substantial momentum to this trajectory is the fact that RBS had acquired expertise and a knowledge base built around conducting mergers and acquisitions. This knowledge acts as a kind of intangible asset that does not appear on any balance sheet but undoubtedly represented a tool in the CEO's repertoire that was readily available as soon as any opportunity presented itself that might benefit from the use of this technique for expansion.

When considering all the different aspects of the cultural implications that appear in this case, it could potentially be considered unreasonable to have expected RBS to have acted by any other means. RBS had captured market share through acquisition to become one of the top global banks through a vehicle of organizational culture that supported the means to achieve such goals. In hindsight, if RBS wanted to level off its expansive growth strategy, a smart play would have been to institutionalize change management activities with a new transformational leader to usher in a new culture of sustainable growth. Without the advantage of hindsight, it is difficult to uphold such an insight in the face of a strategy that had produced such growth. It is hard to judge when to apply the brakes to a system that does not seem to be broken.

Industry Environment and Competitive Pressures

At no time during this case was RBS acting alone in a vacuum. According to banking industry consolidation records, there have been well over thirty mergers and acquisitions in the banking industry since the year 2000 in the United States alone. It is important to view the existence of competitive pressures placed upon RBS through other organizations in the marketplace. If conservative growth strategies produce marginal or stagnant financial growth, then organizations not only have to offer explanations to stakeholders as to why their performance does not equate to that of peer organizations, but they also run an increased risk of becoming the target of an acquisition themselves.

The banking and financial services industry represents a conglomeration of products and services that can be considered mature in the product life cycle development model. There are relatively few markets that remain untapped; banking institutions are prevalent globally. Therefore, this creates an environment in which mergers and acquisitions represent one of the only remaining avenues to increase market share in a heavily saturated industry. This provides banking institutions full access to the full spectrum of growth rhetoric available in a kind of neo-classical capitalistic model and leaves leaders with little room to develop any strategy that might consider anything less than expansive growth.

Not only are the implications of market pressures heavily weighted in the minds of today's industry leaders as incentives for mergers and acquisitions, there are other, more subtle benefits that may also provide organizations' competitive advantages through this mode of expansion. Research in business literature suggests that the infusion of new ideas, paradigms, perceptions, and business processes can act to revitalize otherwise uninspired standard operating procedures (Vermeulen). Therefore, even though initial considerations for mergers and acquisitions are centered around expansion, the ultimate long-term benefits acquired may exceed reductionist speculations through value-added externalities.

Conclusion

Discussions about the failed acquisition attempt made by RBS and its strategic partners to successfully acquire ABN AMRO have been presented by examining the tragedy from different perspectives. By no means does this study represent a comprehensive analysis of all the relevant factors that worked to shape the deal. Instead, it has pointed to a relatively few of the more interesting aspects involved with this acquisition and related them to contemporary themes in developing academic disciplines.