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Barclays’ merger proposal unnerves investors

ABN merger may give global scale, but at what cost to the businesses that have driven the UK bank forward?

Investors in Barclays have been unnerved by its management’s decision to enter merger talks with ABN Amro. True, at first glance it seems reasonable to make a play for the Dutch bank: the valuation of its broad international franchise in prime growth and developed markets has been beaten down by prolonged share price underperformance while it struggled and failed to build a credible top-tier investment bank. The Dutch bank has been tipped into play recently by shareholder activist TCI but has been a clear consolidation target for years. It is cheap and available.

Doubts remain whether this is the deal for Barclays, though. The British bank’s chief executive, John Varley, has famously said that mergers and acquisitions should be the servant of strategy not the master: in other words, banks should decide strategy first and then nail on appropriate deals, not look for the deal first just because it is cheap and doable and then contrive a strategy to justify it. Is ABN Amro suddenly such a good strategic fit, or is this an opportunistic trade? Barclays’ investors assume the latter. From day one, they have raised serious doubts about Varley’s credibility.

This might be unfair.

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