RBS Offers Second Largest Bookbuild
The [pound]2.1bn (E3.4bn) bookbuild for Royal Bank of Scotland (RBS), the UK financial services group, was the second-largest accelerated offering of new shares ever. Merrill Lynch and UBS Warburg led the quick-to-market deal, which only falls behind the mammoth one-day sale of [pound]3.5bn Vodafone shares in May, on which UBS Warburg was also co-lead manager. The deal was also unusual in the venue for the final sign-off of the papers - the pub next door to the RBS headquarters.
Although the share sale may have only taken 10 hours, planning for the offering took slightly longer. James Renwick, co-head of European equity capital markets at UBS Warburg, says: "Merrill and UBS liaise closely with RBS on a number of strategic issues and we got working in earnest three weeks before the offering." RBS was raising funds to finance its purchase of some of the businesses of Mellon Financial Corporation, the US bank, which it announced on the same day as the equity offering. Goldman Sachs advised RBS on the acquisition.
Matthew Greenburgh, managing director and co-head of global financial institutions at Merrill Lynch says: "It was very important for RBS to announce the acquisition of Mellon and the equity raising at the same time. Other companies have delayed equity financing and suffered from the dramatic worsening in conditions."
UBS Warburg's Renwick says: "The RBS management team has a very efficient decision-making process, so it can act quickly which minimises the risk of leaks. Although news of the acquisition leaked to a US newspaper, there was no second-guessing that an equity raising was coming, which would have put pressure on the company's share price.
"The timing of the deal was tricky as the market was choppy in July and we wanted to avoid the holiday season in August." RBS's results were also due in August and although the company did not bring them forward, the banks wanted to give headline profit numbers in the deal announcement.
Merrill's Greenburgh says RBS chose the accelerated global tender structure because the company wanted a finely priced deal that was cheap. "The transaction was also structured to include a unique underwriting of the bookbuild to satisfy bank regulatory requirements," he adds. Greenburgh believes that Fred Goodwin, chief executive of RBS, built up a strong reputation and following during the NatWest deal, so there was no need for RBS management to heavily market the current offer. Merrill Lynch had advised RBS on its acquisition of NatWest, the UK banking group, last year.
Rupert Hume Kendall, managing director of equity capital markets at Merrill Lynch, says: "For a company that is as careful and scrutinising as RBS, the accelerated tender was a swashbuckling structure."
Hume Kendall explains that clients look to precedent and both Merrill and UBS had relevant track records for the RBS deal. "We had run a E3.2bn accelerated global tender in ABN Amro last year in the financial sector, while UBS had executed the Vodafone trade in the UK," he says.
Events proceeded at a frantic pace once RBS agreed on the purchase of Mellon's retail assets in the week before the equity offering. …