The new bid - published ahead of a midnight deadline for increased offers - includes an extra 3.5 billion pounds in cash, valuing NatWest at 14.90 pounds a share or 24.9 billion pounds ($40.3 billion).

"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," Royal Bank Chief Executive George Mathewson said.

"We talked to the major institutional shareholders and we got the message that they were looking for more cash," Mathewson told Reuters in an interview. "We've tried to put something together that meets that transient need for cash," he said.

He said he now expected the debate to focus on the merits of each Scottish bank's plans to improve NatWest's revenues and efficiency.

Royal Bank said it was now offering two alternatives including one with a higher cash element.

The first was similar to its initial bid but includes an extra 95 pence of basic cash per share. This offer is for 0.968 new Royal Bank shares plus 400 pence cash, up from 305 pence of basic cash previously.

After accounting for the removal of a 20 pence dividend that was to be paid in the first offer, but is now included in the basic cash element, the cash element is 75 pence higher.

The second alternative, called the partial cash alternative, is for 0.920 new Royal Bank shares plus 450 pence cash a share.

Both alternatives are eligible for a bonus issue of Additional Value Shares (AVS), which are a tradeable issue that guarantees one pound cash up until December 1, 2003.

Royal Bank said this AVS - effectively a promise against future revenue streams - was currently worth a total of 70 pence given the time value of money. But because it is also being offered to Royal Bank shareholders, it is currently worth 64 pence to NatWest shareholders.

Once added to the 450 pence of pure cash, this high cash option was worth 514 pence per share cash to NatWest shareholders, or a total of about 8.6 billion pounds, up from 5.1 billion previously.

The first option values NatWest shares at 14.90 pounds each or 24.9 billion pounds while the second option also values the shares at 14.90 pounds - given Royal Bank's closing share price on Friday of 10.60 pounds each.

Royal Bank said British insurer CGU Plc, which would become the strategic life and pensions partner of the new group, would subscribe for 900 million pounds worth of Royal Bank preference shares. CGU's previous commitment to buy up to 300 million pounds of Royal Bank shares on-market within six months was unchanged and it said it had already bought 156 million pounds worth.

Royal Bank's biggest shareholder, Spain's BSCH, would contribute additional cash of up to 500 million pounds to back the high cash option in the bid. How much it pays depends on how many shareholders choose this option. NatWest's shares fell 51 pence or four percent to 1225 by 0945 GMT, 15 percent below the value of Royal Bank's new offer and widening the discount from last week.

-- (Reuters)