W&G Investments to Offer $2.4 Billion for RBS Branches

W&G Investments Plc, the investment vehicle led by former Tesco Plc Finance Director Andrew Higginson, plans to make a bid of as much as 1.5 billion pounds ($2.4 billion) for Royal Bank of Scotland Group Plc branches.

W&G will offer about 1.1 billion pounds in cash plus 400 million pounds depending on the performance of the business, according to company filings. The company today asked London’s Alternative Investment Market to immediately suspend its shares, pending the acquisition of the 316 RBS branches.

“This is the type of bank our investors would like to own” but haven’t been able to in the past, Higginson said in a telephone interview. “It’s a very simple straightforward bank that takes in deposits from its customers, lends them to other customers and makes its margin in the middle.”

RBS has been told by the European Union to sell the outlets by 2014 to comply with state-aid rules after receiving a 45.5 billion-pound taxpayer bailout in 2008 and 2009. Chief Executive Officer Stephen Hester, who steps down in September, said this month that while the lender would prefer to sell the branches in an initial public offering, it was open to private offers.

The Edinburgh-based bank’s shares dropped 0.4 percent to 338.60 pence in London. They have increased 4.4 percent this year, while the Bloomberg Europe Banks and Financial Services Index has gained about 10 percent.

Minority Stake

W&G is one of three bids RBS has received for the branches. Centerbridge Partners and Corsair Capita are heading up a rival consortium, while AnaCap Financial Partners LLP and Blackstone Group LP have teamed up to lead a third offer.

The bidders are looking to take a minority stake in RBS’s branch business after a public listing through a 600 million-pound to 800 million-pound investment in a so-called pre-IPO convertible bond, according to three people with knowledge of the details who asked not to be identified because they weren’t authorized to speak publicly.

Officials at the firms declined to comment on the structure of their bids. A spokesman at RBS declined to comment.

“We’re the only actual bidder,” said Higginson, 56. “The others involve an IPO two years down the tracks whereas ours is a proper bid that will buy the business outright this year. Waiting another two years in the hope of an IPO is not the right thing to do in terms of building up a challenger bank.”

‘Compelling Proposal’

RBS could make a decision on how it will proceed with the sale, known as Project Rainbow, before the end of the month, though it’s more likely to come in September, said one of the people. The bank is being advised by UBS AG.

“AnaCap and Blackstone have submitted a compelling proposal for Project Rainbow which delivers execution certainty and optimizes value for RBS and its key stakeholders,” Blackstone spokesman Andrew Dowler said in a statement.

The branches on sale have about 21.5 billion pounds in customer deposits and serve about 2 million small businesses and consumers. They generated 305 million pounds in operating profit in 2012, about 10 percent of RBS’s annual total.

“Our structure creates the best value and long-term potential for the taxpayer and RBS,” said John Maltby, who heads the Corsair, Centerbridge bid. “We have completed full due diligence, we have raised the money and we are ready to go.”

W&G raised an initial 15 million pounds through a share sale to finance the due diligence examination of the business, according to a statement. If the company fails to buy the branches, the shares will be canceled, it said.

After Banco Santander SA, Spain’s biggest bank, abandoned its 1.7 billion-pound planned purchase of the branches in October, RBS signaled to the European Commission that it may seek an extension to the branch-sale deadline, though it hasn’t formally asked for one yet.