The Barclays Catch-22

Dennis Berman talked to Barclays president Bob Diamond

today, and got this astonishing admission:

“The Barclays share price, as it rises over the next few weeks, will

be critical to our success in the deal,” Diamond said in an interview

with Deal Journal today.

The deal in question, of course, is Barclays’ attempted

takeover of Dutch bank ABN Amro. Barclays’ offer is lower than that of the

rival RBS-led consortium, which means that in order for the Barclays offer to

succeed, the English bank’s share price is going to have to rise substantially,

as Diamond says.

Now this is where things get interesting. Barclays’ bid for ABN Amro was already

fully valued, and if it pays much more than this, it will likely be overpaying.

(Barclays can’t get the economies of scale that the RBS consortium can, especially

in the Netherlands.) If Barclays wins ABN Amro, then, its shares, like those

of most successful acquirers, are likely to drop.

On the other hand, if Barclays fails to win ABN Amro, then Barclays itself

becomes a serious takeover target overnight. As such, its shares are likely

to rise.

In other words, if you think Barclays is going to win ABN Amro, you should

sell the shares, which will cause it to lose ABN Amro, which will make it a

takeover candidate, which will make the shares rise, which will make it able

to win ABN Amro after all, which means the shares will drop…

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