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LONDON -- Could successful hostile bids by British firms be like buses? Certainly, one seems to come by every few moments.


Vodafone AirTouch


finally bullies



into a merger. Now, the

Bank of Scotland

is set to abandon its bid for

National Westminster


, likely paving the way for a successful

Royal Bank of Scotland



In a dramatic finale to the takeover of NatWest, Peter Burt, the chief executive of Bank of Scotland, sent a memo to his staff on Thursday telling them that the bank's bid is unlikely to succeed.

NatWest declined to comment on the implications of a Bank of Scotland withdrawal. Its directors have been locked in meetings with advisers for much of the day and a spokesman declined to say whether an announcement regarding the bank's future would be made today.

"Technically we have until Monday before we have to say anything," he said, referring to the deadline for the shareholders to tender their shares.

As of 2:30 p.m. EST, Royal Bank of Scotland ADRs traded in New York were down 1/16, or 0.3%, at 20 5/8, while NatWest ADRs dropped 6 1/4, or 5.5%, to 108 1/2.

The defeat of Bank of Scotland's bid for NatWest was apparently sealed by the decision of the U.K. fund management firm


earlier Thursday to change sides and support Royal Bank of Scotland. PDFM controls 2.2% of NatWest shares, but its presence on Bank of Scotland's side could have split the institutional vote between the two Scottish banks, thereby allowing NatWest to escape from either side's clutches.

PDFM's move reflected fund managers' anger at NatWest's poor performance and a desire for a clear majority vote that would rule out any chance of NatWest remaining independent.

A decision by Bank of Scotland to withdraw its bid means those funds that have yet to commit one way or the other will now commit to Royal Bank of Scotland.

The question on everyone's lips now is, Where does Royal Bank of Scotland's expected victory leave Bank of Scotland?

Bank of Scotland's shares closed up 6.5% at 677 pence, adding to yesterday's 57.5 pence gain, suggesting that there are enough people around who believe it's now more prey than predator.

If Bank of Scotland is taken out, it would be scant reward for a strategy that was both farsighted and bold. Bank of Scotland was, after all, the first of the two Scottish banks to make a play for NatWest back in the fall. Various banks have been named as potential bidders for Bank of Scotland, including




Lloyds TSB

and even

Abbey National


Whether any offers will materialize is another matter. Speculators may believe another merger to be both desirable and likely, but this is not a view shared by all in the analyst community.

There are major concerns about the extent to which banking mergers boost share prices. A lot of the promises made by both Scottish banks during the battle for NatWest have been without the benefit of due diligence. In other words, it's been little more than educated guesswork. Analysts, who like hard facts and figures, worry about this.

NatWest made much of this sentiment during its defense, pointing out that many of the big banking mergers seen in the U.S. over the past decade have failed to deliver enhanced shareholder value. That's hardly surprising given that the disruption that accompanies a megamerger takes a good couple of years to work its way out of the system.

Advocates of a takeover of Bank of Scotland point to the merger of Lloyds and TSB as an example of how banking tie-ups can work. Yet Lloyds-TSB is not really a good case study. For starters, when the merger was first proposed, it was based more on synergy benefits than massive cost cutting and rationalization.

True, Bank of Scotland has no branches in England and could offer a London-based rival a much stronger presence north of the border. It also has a higher return on capital than many rivals, a good track record and, arguably, it's not big enough to survive on its own in the long term.

However, anyone who regards Bank of Scotland as a target would have to set out the potential cost savings, and given that the bank has always been one of the U.K.'s most efficient operators, there is not much fat to remove.

The hostile takeover of NatWest by Royal Bank of Scotland may indeed be February's second U.K. success story, but that doesn't mean there will be a third one hot on its heels.