Merrill Lynch

Its work on the Fortis, Santander and RBS takeover of ABN Amro won Merrill Lynch grudging admiration from its peers.

Also shortlisted in this category: Goldman Sachs Citi
	“I called Matthew that night and said ‘maybe I’m crazy, but could we put something together here?’’ Andrea Orcel

What does the head of M&A at one of the world’s leading investment banks make of Merrill Lynch’s work on the €71 billion consortium takeover by Fortis, Santander and RBS of ABN Amro, a deal in which his own firm had some involvement?

The banker sits back in his seat, narrows his eyes and exhales. “Oh, that was quite brilliant.” He shakes himself, realizing that he has committed the sin of unreservedly praising a competitor, and seeks to correct the impression. “Of course, other firms had the opportunity to do that. We could have done that.”

Well no, in fact, his firm couldn’t and other firms didn’t.

This was a landmark transaction of extraordinary size and complexity, a contested deal, the second-largest ever M&A deal in Europe, the biggest ever bank deal. And for the M&A bankers at Merrill Lynch it was a defining moment.

As Barclays mounted its bid for ABN Amro, more and more leading M&A advisory firms were recruited into the fold until only two big names were left outside – Goldman Sachs and Merrill Lynch.

Merrill is a leading force in financial institutions M&A. It was unlikely ever to be appointed by Barclays, given how closely it had worked in the past with the bidder’s UK rival, RBS. It could have been given a minor role on the ABN Amro side for no fee, but the idea of settling for that repulsed Andrea Orcel, Merrill’s head of origination, who had been striving to reshape Merrill’s whole approach to the business.

In M&A, one firm can do all the work and then on the day before formal announcement a second firm can come to the client and suggest it could make a nuisance of itself with a rival, or the client could bring it inside the tent. Lo and behold the second firm is appointed.

Orcel says: “We changed our M&A philosophy a few years ago. We decided that if Merrill Lynch is to succeed in this business, we needed to create value. Instead of fighting for league table status by chasing lesser roles, such as providing fairness opinions, we chose to focus our efforts on providing advice that would genuinely help grow or strengthen a client’s business.”

When Goldman took a role advising the supervisory board of ABN Amro, it became official: nothing now could prevent the deal with Barclays from going ahead. Orcel rationalized that he should talk to long-standing client Emilio Botín at Santander and his colleague Matthew Greenburgh to Fred Goodwin at RBS about ways to deal with the potential fallout from the transaction and what pieces if any might be picked up. Orcel also put in a call to Jean-Paul Votron, chief executive of Fortis, with which Merrill had a lesser relationship. Votron revealed that he might be interested in picking up disposals from the Barclays ABN Amro combination. Orcel recalls: “I called Matthew that night and said ‘maybe I’m crazy, but could we put something together here?’’

The idea for the deal was born. Orcel says: “This could not have happened if we had not determined, as a firm, to try to create actual value for clients rather than merely the perception that we were doing so.”

No one could quite believe it at first. The received wisdom was that the consortium would never formalize a bid: it did. Then critics said the consortium would break apart: it didn’t. Finally, opponents suggested that the consortium members would never be able to raise the cash: Merrill underwrote the capital-raising.

Euromoney has spoken to the principals to the extraordinary deal and one key explanation for its success emerges: retaining one sole adviser, Merrill Lynch, rather than each consortium member having separate advisers. Orcel says: “We shook hands as gentlemen and agreed that the principals would decide key points together with Merrill acting as facilitator and witness. This proved to be a smooth and clean process, allowing important decisions to be discussed and agreed in a timely and civilised manner.”

Was it really a success for the members of the consortium? Two of the winning bidders, RBS and Fortis have been forced to recapitalize this year. “Right now the results of the merger are being polluted by the credit crisis. This deal will have to be evaluated three to five years from now,” says Orcel.

He is amused that other advisers are casting around for the next potential consortium bid, with ING often being mentioned. It was, he says, a unique circumstance and not one that can simply be replicated.

For good measure, in the midst of it, Merrill also advised UniCredit on its deal with Capitalia. It is now busy advising Russian companies on landmark strategic deals, having only pushed hard into that market 18 months ago.