(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By George Hay
LONDON, Oct 8 (Reuters Breakingviews) - Colossal synergies, unassailable market dominance and a cheap valuation. National Bank of Greece’s (NBGr.AT) megadeal with rival Eurobank EFG EFGr.AT has the ingredients that normally make investors salivate. But this is Greece, and even this startling combination doesn’t add up to a compelling equity story in the Greek banking sector.
NBG-EFG would hold around half of all domestic deposits, and be over twice the size of its nearest rival. The combination, which values Eurobank at a slight premium to its share price on Oct. 4, could create about 600 million euros of annual pre-tax synergies by 2015. On any conventional merger arithmetic, the taxed and capitalised value of these would exceed the groups’ combined market capitalisation of 2.5 billion euros - even if the savings are ascribed a meagre six times multiple.
The deal follows Alpha Bank’s (ACBr.AT) negotiations to buy Emporiki, and Piraeus’s (BOPr.AT) move for Geniki. The consolidation brings a new stability to the Greek banking landscape. The sector wrote down more than half the value of its Greek sovereign bonds earlier this year, and will at some point benefit from 50 billion euros of capital pledged by the euro zone. NBG and EFG’s share of this is about 18 billion euros.
Under rules likely to be imposed by Greece's euro zone masters, banks that can secure 10 percent of their capital needs privately can then take their bailout capital in a form that doesn't dilute existing shareholders' voting rights. Surely NBG/EFG can find the requisite 1.8 billion euros to satisfy that condition?
Not so fast. The new behemoth may struggle to realise its potential. The European Commission could require asset disposals to soften the bank's dominance. Even then, the size of the bank’s market share, and its reliance on euro zone bailout funds - of whatever kind - means that minority investors should be sceptical over whether the ostensible merger benefits will translate into shareholder value.
Meanwhile, Greece has yet to secure a delayed 31.2 billion euro tranche of its bailout from the euro zone and the International Monetary Fund. To do so, it will need to show that it can make further spending cuts. And without a new bailout deal, Greek banks won’t get the rest of their capital, and their liquidity line from the European Central Bank might dry up.
Of course, if anti-trust regulators are kind and Greece stages a smooth escape from the mire, the combination does represent a juicy leveraged play on recovery. But the shares are still a gamble.
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- Eurobank EFG announced on Oct. 5 it had received a share swap deal from National Bank of Greece. NBG has offered to acquire all Eurobank’s shares in return an exchange ratio of 58 new NBG shares in return for every 100 Eurobank shares it already owns.
- The offer implies a price of 1.17 euros per Eurobank share on the basis of the closing market price of NBG shares on Oct. 4, 2012. It would leave NBG shareholders holding 75 percent of the new company’s shares, and Eurobank EFG investors holding 25 percent.
- NBG said that the deal could create annual pre-tax synergies of between 570 and 630 million euros by the end of 2015.
- Eurobank’s CEO Nicholas Nanopoulos said Eurobank’s board would further evaluate the merits of the business combination “in the interest of all stakeholders, including employees, customers, shareholders and the Greek economy”.
- Eurobank is being advised by Barclays, Deutsche Bank and Goldman Sachs International.
- NBG is being advised by Credit Suisse.
- NBG shares rose 11 percent to 2.3 euros on Oct. 8. Eurobank EFG shares rose 9.4 percent to 1.3 euros.
- Eurobank statement, Oct. 5: link.reuters.com/kun23t
- NBG statement, Oct. 5: link.reuters.com/mun23t
- Reuters: Greece's NBG offers to buy Eurobank in share swap [ID:nL6E8L55N8] - For previous columns by the author, Reuters customers can click on [HAY/]
(Editing by Chris Hughes and David Evans)
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