If Mittler shares these doubts, he does a good job of hiding it. “Let’s face it,” he says. “It would have been easier and substantially less exciting for me if I only had [to deal with] ABN Amro or the subprime and liquidity [issue]. One of the two is easy to manage. The two together is a challenge.”
Helping to meet that challenge, the bank completed a €13 billion rights issue in September to finance the ABN deal and placed various instruments since then for much of the remainder of its €24 billion payment. But in a recent research note, analysts at Dresdner Kleinwort expressed concern over Fortis’s financial flexibility given the share of hybrid debt on its balance sheet after the deal. Fortis, meanwhile, is preparing for a rockier road ahead. In late June, the bank said it wants to “accelerate” its solvency plan, cancelling an interim dividend and announcing a €1.5 billion equity raising, a sale-and-leaseback real estate deal, asset disposals and the issuance of new instruments such as preference shares, all raising an expected €8 billion. But its shares fell fast on the news.
Mittler concedes that Fortis will “consume capital” in 2008 and 2009 to grow the business, service dividends and cover €1.5 billion in integration costs. After 2010, he expects to have excess capital and be in a position to pay down debt.
A clear, long-term focus is key to the success of any integration plan, says Michel Driessen, an integration specialist at Ernst & Young, who describes a CFO as the “architect and custodian” of a deal’s synergies. Lingering too long on the cost-cutting and restructuring components risks losing support among the investor community, who “want to see that you’ve bought something to grow it,” he says.
Mittler reckons Fortis will soon be ready for the next step, beyond cost-cutting and restructuring. When the economic situation improves — in late 2009, he predicts — “We’ll be able to show the market that we have synergies, that the story is not a dream, not a promise, but a reality,” he says. The market will be waiting.
Tim Burke is senior staff writer at CFO Europe.