July 16 (Bloomberg) -- Royal Bank of Scotland Group Plc sweetened its 71.1 billion-euro ($98.1 billion) offer for ABN Amro Holding NV by increasing the cash portion, seeking to beat Barclays Plc to the world's biggest banking takeover.

Royal Bank, which is bidding with Banco Santander SA of Spain and Fortis of Belgium, offered 38.40 euros a share for the biggest Dutch lender and raised the level of cash to 93 percent from 79 percent, the banks said today. ABN Amro shares rose 3.6 percent today to 37.15 euros, 7 percent above Barclays's all- stock offer currently valued at 34.72 euros.

Fred Goodwin, the chief executive officer of Royal Bank, is forging ahead with a bid that excludes ABN Amro's LaSalle Bank, after a Dutch court ruled last week the Chicago-based unit can be sold to Bank of America Corp. Royal Bank, Santander and Fortis still plan to divide ABN Amro's businesses, which span 53 countries from Brazil to India. The revised offer puts pressure on Barclays to raise its bid for ABN Amro, whose shares have gained 53 percent this year, the most in a decade.

``The Royal Bank group is certainly on the front foot,'' said Martin Kinsler, who helps manage about $125 billion at Henderson Group Plc in London, including Royal Bank, ABN Amro and Barclays shares. ``ABN Amro shareholders will want to know how Barclays is going to respond.''

Royal Bank shares fell 3.5 pence, or 0.6 percent, to 636.5 pence in London, while Barclays climbed 4 pence, or 0.6 percent, to 728.5 pence ($14.84).

Splitting Up ABN

The trio of banks will pay 66 billion euros in cash for ABN Amro, with the remainder in Royal Bank shares, the group said today. The banks can maintain the same offer price as before because they will get the proceeds of the $21 billion sale of LaSalle to Bank of America, a deal that's now set to go ahead.

Though Royal Bank's previous bid, announced May 29, was ``crafted'' around LaSalle, Goodwin said the Dutch bank's investment banking and Asia retail businesses are as important.

Revenue gains and cost savings will be lower without LaSalle, Goodwin told reporters on a conference call today. The bank expects 1.72 billion euros of cost and revenue benefits by 2010, down from the 2.86 billion euros forecast in its earlier offer to buy ABN Amro including LaSalle. Royal Bank's integration costs will drop 30 percent to 2.7 billion euros without LaSalle, Goodwin said on a call with analysts.

Right Move?

Goodwin, who has overseen more than $60 billion of acquisitions since 2000, has failed to convince investors that the proposed purchase of ABN Amro will increase profit fast enough to bolster Royal Bank's underperforming stock.

Shares of Royal Bank dropped 5 percent since the offer for ABN Amro was unveiled April 25, even as 11 of 15 analysts recommended investors buy the shares during the past three months, data compiled by Bloomberg show.

The group's bid ``signals a worrying eagerness to win the ABN takeover battle, potentially at the expense of current Royal Bank shareholders,'' said Sandy Chen, a London-based analyst at Panmure Gordon & Co. who rates the stock ``buy.''

Investors are also concerned Barclays may overpay.

``As a shareholder, you wouldn't want them to come in with a much higher offer,'' said Julian Chillingworth, who helps oversee about $21 billion, including Barclays and Royal Bank stock, at London-based Rathbone Brothers Plc.

Of 15 analysts who published a rating on Barclays in the past three months, eight recommended investors buy the shares, Bloomberg data show. Six of 22 analysts rated ABN Amro shares a ``buy'' in the period.

Too Much Risk?

The acquisition ``remains compelling'' because it will open up new markets and opportunities for growth, said Goodwin, who added that Royal Bank has ``very good support'' from shareholders. The bank's investors will meet to consider the offer by early August, Goodwin said. Santander shareholders will vote on July 27, and Fortis investors on Aug. 6.

``I still question whether they are right to take on all the execution risk without LaSalle,'' said Mike Trippitt, a London- based analyst at Oriel Securities Ltd. ``LaSalle for them was the real gem. It seems like they are now just looking at a lot of heartache with the consolidation of all these businesses,'' said Trippitt, who has a ``buy'' rating on the stock.

The additional 10 billion euros in cash needed for the revised offer will consist of short term loans to be repaid when the LaSalle proceeds are received, said Guy Whittaker, Royal Bank's finance director.

Barclays's Response

The Barclays bid will produce ``better long-term value'' for ABN Amro shareholders, CEO John Varley said today in comments passed on by a spokesman. He said Barclays will only proceed with the transaction on terms that produce the ``right results'' for its shareholders. ``We have high benchmarks for returns and we will not compromise them,'' Varley said.

Barclays, which has pledged to keep the Dutch bank in one piece, may have to team up with another bidder or sell more of ABN Amro's assets to win, analysts said.

Neil Moorhouse, a spokesman for Amsterdam-based ABN Amro, said the bank ``is studying the proposal'' from the group.

Santander, Spain's biggest bank, would expand into Italy and double its market share in Brazil with the acquisition. Fortis, the largest Belgian financial-services company, is seeking the Dutch consumer banking arm and ABN Amro's asset-management and private bank units to create a ``Benelux leader.''

`Deepest Pockets'

Royal Bank and its partners are better able to cut costs and drive gains out of ABN Amro than Barclays, analysts and investors say, citing Royal Bank's track record for successfully integrating acquisitions, including its $37.8 billion purchase of London-based National Westminster Bank Plc in 2000.

Based on Royal Bank's estimates today, the three banks expect more than 4 billion euros of cost savings and revenue gains from ABN Amro annually by 2010, excluding LaSalle. That compares with 3.5 billion euros from Barclays.

``The guys ultimately with the biggest, deepest pockets will win,'' said Roger Nightingale, global strategist at Millennium Global Investments. ``That absolutely means the Royal Bank group, not Barclays.''

A Dutch Supreme court last week upheld ABN Amro's agreement to sell LaSalle to Bank of America, a transaction Barclays needs to finance its offer for the Dutch bank. The ruling came after Bank of America, ABN Amro and Barclays appealed a decision by an Amsterdam commercial court in May which blocked the sale of LaSalle, saying ABN Amro should have sought shareholder approval.

Court Ruling

The commercial court froze the sale after Dutch shareholder group VEB said the LaSalle deal was a poison pill designed to prevent Royal Bank and others from outbidding Barclays.

``Because there is such a massive difference between the two bids, the only way for Barclays to compete is to try and sell some more of ABN's assets to a third party,'' said Arturo De Frias, a London-based analyst at Dresdner Kleinwort, who has a ``buy'' rating on ABN Amro's stock.

Barclays and the Royal Bank group have to make formal offers for ABN Amro on or before July 23.

Fortis sold 980 million euros of assets and 2 billion euros of bonds last week to raise funds to purchase its share of ABN Amro.

To contact the reporter on this story: Ben Livesey in London blivesey@bloomberg.netJon Menon in London jmenon1@bloomberg.net

Last Updated: July 16, 2007 13:24 EDT