Sunday, July 15, 2007

ABN CEO Rijkman Groenink, Genius or Goat?

This story has been dragging on for months now, but an end is in sight:

"The ruling clears away legal uncertainties and any bidder wishing to purchase ABN Amro's remaining operations -- plus the $21 billion in cash it is getting for LaSalle -- can step forward.

British bank Barclays PLC has the inside track. It already has agreed with ABN's management to buy the bank in an all-share deal worth 63.7 billion euros ($87.6 billion).

But a rival consortium led by Royal Bank of Scotland PLC, which had hoped to acquire LaSalle as well, said Friday it will bid before a July 23 deadline."

-Associated Press

So, there are few who will care to know the intricacies of this case, but the bottom line is, ABN Amro CEO Rijkman Groenink agreed to sell his bank's U.S. arm LaSalle for $21 billion in four days time.

Was that a stroke of genius, or mismanagement?

RBS will now probably bid EUR1 per share less for ABN ex-LaSalle (a number that is buried deep in their preparatory bidding documents) than otherwise. If that turns out to be true, Groenink will have lost around 3 percent for shareholders by favoring what he knew was very likely to be a worse deal.

His reasons have never been fully explained; he said he believes the worse deal will be better for ABN in the long run, but pretty much everybody else (analysts, employees, customers) disagrees or is neutral. He personally stands to LOSE money as a result, so you can't accuse him of financial self-interest. One possibility is that this was an ego-driven patriotic self-interest in preserving some kind of 'legacy' of ABN.

If so, that's weak for any number of reasons. Not least: in my experience, nobody is going to feel much nostalgia if ABN disappears completely.

On the other hand, at least Groenink made sure ABN got a reasonable price for LaSalle. At the shareholders meeting, he was challenged that only a fool would sell something worth $21 billion after four days of negotiations.

Groenink's response: (paraphrased) 'I wouldn't be prepared to buy something valuable that I don't own after four days of due diligence. But I would be prepared to sell something I do own and know the true value of.'

I think he can make a fair argument he knew _ or thought he knew _ what he was doing, even if later events prove(d) him wrong. At least he got a sane price for LaSalle, even if it enraged shareholders and brought a legal hell down around the company.

It's noteworthy that the CFO jumped ship very, very soon after this decision was made, and the board stepped in to handle future negotiations _ essentially putting Groenink on the sidelines.

After Friday's court ruling, the shareholders rights group VEB complained bitterly that the law allowing management to make major strategic decisions without shareholder consent ought to be changed.
Under the current system, management is expected to inform shareholders about its general intentions, but in the end it can generally do what it likes. Shareholders' only recourse is to throw the bums (well, the bums supervising the bums) out if they disagree.

I've heard impassioned arguments on either side of the argument as to whether that structure should be changed.

Et Tu?

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