NatWest was expected to throw in the towel on Thursday and agree to a friendly deal with the Royal Bank of Scotland.

Acceptance of the takeover bid would bring to an end the long-running battle between RBS and Bank of Scotland for control of the UK's third largest clearing bank.



Unconfirmed reports on Thursday suggested NatWest had already conceded defeat, but the bank itself refused to comment.

Large institutional backers such as Mercury Asset Management, Schroders and Standard Life - the second, third and fifth-biggest shareholders in NatWest (with 4.65%, 3.3% and 2.66%) - have all said they have decided to support RBS's offer.

RBS now has firm or provisional backing from investors owning more than 30% of NatWest.

City sources had said the NatWest chairman, Sir David Rowland, is expected to make a statement recommending RBS's offer if more major investors give it their backing. Only Prudential and Legal & General have yet to declare their hand.

But NatWest denied reports that Sir David had held a meeting with his Scottish counterpart, and refused to confirm that it had called an emergency board meeting to back the deal.

Alex Potter, banking analyst at Commerzbank, said: "It looks like it's all over, but the fat lady hasn't sung yet."

Earlier, it had seemed as if the advantage was firmly with rival bidder Bank of Scotland, when another major shareholder, Phillips & Drew Fund Management (PDFM) - with 2.3% - confirmed it had decided to back the BoS bid.

As the bookmakers shortened their odds on Bank of Scotland, shares in RBS soared on predictions that rival bank Lloyds TSB might attempt to buy it if its bid failed.

But now it is BoS which is looking vulnerable to a takeover bid.

BoS shares soared on the London Stock Market on Wednesday, while RBS shares crashed, down 149p lower at 904p.

That lowers the value of their bid, which is now worth £2.54 per share less than BoS. If the decline in the share price continues, some institutions may be forced to reconsider their positions.

Wooing investors

Other major investors whose voting intentions are known are Norwich Union, Britannic Asset Management and Edinburgh Fund Managers.

Norwich Union is putting its 1.12% of NatWest's shares behind RBS; Britannic Asset Management, the 30th-largest NatWest shareholder with 0.8%, is also supporting RBS; while Edinburgh Fund Managers has pledged its 0.3% stake behind BoS.

Officially shareholders have until 1300 GMT on Monday, 14 February to decide on their choice.

One of the Scottish banks must gain 50% of NatWest's shares or the bids will fail.

Clear as mud

The waters have been muddied by the fact that advisers from the major broking houses have come to no consensus on which bidder will win.

The two offers are very similar in value, leaving analysts to pore over the strategies of the three parties.

NatWest had repeatedly rejected the increased takeover offers from its two Scottish rivals, saying both bidders are in danger of over-stretching their finances.

Sir David Rowland said: "Neither offer adds real value and both would leave the offeror financially stretched."

NatWest repeated its previous arguments that banking mergers were high risk and cited cases in the US which had destroyed value rather than generating benefits.

It also questioned the management experience at both Bank of Scotland and RBS, pointing out that neither had executives who had handled a major merger.

BoS: "Higher value"

Bank of Scotland said its final offer valued each NatWest share at about £14.41 and that the total value of the bid was 5.2% higher than the value of the Royal Bank's final bid.

NatWest shareholders would own 70% of the combined group, which would be headed by BoS chief executive Peter Burt.

BoS would sell off Gartmore, Greenwich NatWest and Ulster Bank and would undertake "major surgery" of the branch network with 21,800 redundancies.

Peter Burt said his bank's bid was worth £1bn more than RBS's and gave NatWest shareholders a bigger stake in the combined group.

"We have a better strategy to turn NatWest around," he said.

RBS: "More cash"

Under the Royal Bank's offer, NatWest shareholders would own 62% of the combined group, which would be headed by RBS chairman Viscount Younger.

RBS would sell off Gartmore and US Greenwich NatWest but keep UK Greenwich NatWest and Ulster Bank. It has no plans to close branches but does expect 18,000 redundancies.

On upping the bid, chief executive George Mathewson said: "We have injected more cash into this offer in a way which does not involve dismembering the NatWest business and does not disadvantage any of the shareholders involved."

The RBS bid includes an 'additional value share' - guaranteeing a £1 dividend by 2003 and estimated to be worth 70p each - which technically cannot be included in the offer price.

RBS's biggest shareholder, Spanish bank BSCH, is contributing additional cash of up to £500m to back the new bid.

Fight for survival

NatWest had fought hard to resist the bids, insisting it would be better off retaining its independence. It had said it wouldreturn £6.5bn to shareholders.

NatWest gained credibility by poaching Gordon Pell from Lloyds TSB to reinvigorate its management team as head of UK banking.

The bank had also said it will cut 11,650 jobs by next year and further slim down by selling Gartmore Investment Services, Greenwich NatWest, Ulster Bank and NatWest Equity Partners.

It said it would double its life and pensions market share, "significantly" grow its mortgage business, boost online customers to one million by the end of the year, and double investment services funds over the next three years.

But the credibility of its management is at a low point in the City after a string of blunders and poor investments hit its profits and lowered its share price, making it vulnerable to a takeover.