Barclays and ABN Amro Seal the Deal

The world is about to get another massive Anglo-Dutch company added to its ranks. Last night, Barclays (NYSE: BCS) and ABN Amro (NYSE: ABN) announced that they had agreed to a merger where Barclays will pay 3.225 shares for each share of ABN Amro, which works out to approximately 36.25 euro per share. The announcement is the result of a courtship that began more than a month ago.

The combined Barclays and ABN Amro will be among one of the 10 largest banks in the world, one of the largest credit card issuers, and the largest institutional asset manager in the world. The combined firm will also join Income Investor selection Unilever (NYSE: UL) and Royal Dutch Shell (NYSE: RDS-B) as another Anglo-Dutch titan.

As a part of the deal, ABN Amro will sell its LaSalle Bank operations to Bank of America (NYSE: BAC) for $21 billion. The sale to Bank of America is a required condition for the deal to continue, and once the firms are combined, the proceeds will be returned to shareholders primarily through share repurchases. The sale is logical, as Barclays already has a large asset-management presence in the U.S. and shareholders can't complain about the planned use of the proceeds.

The sale of LaSalle also makes ABN Amro less attractive to the consortium of Royal Bank of Scotland (OTC BB: RBSPY.PK), Fortis, and Banco Santander Central Hispano (NYSE: STD). ABN had hinted that the consortium wished to divide it up among the group, with Royal Bank of Scotland taking LaSalle and U.K. operations, Banco Santander the Central and South American operations, and Fortis the Dutch operations. The consortium may still have a shot at a deal, but if I were a shareholder in ABN Amro, I would prefer to receive the shares of Barclays and potential future returns over a cash buyout from another suitor. Investors with shorter time horizons might see the situation differently.

In general, I'm not a huge fan of large banks, because their sheer size makes them difficult to manage and slow to respond to competitive threats. However, because of the large asset-management business the combined Barclays and ABN Amro will have, I'm a bit curious to see how this deal works out and whether the pair can overcome the size problem that has befuddled a number of banks.

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At the time of publication, Nathan Parmelee had  no financial interest in any of the companies mentioned. Bank of America is a Motley Fool Income Investor selection. The Motley Fool has an ironclad disclosure policy.