(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
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
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
- 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
- NBG said that the deal could create annual pre-tax
synergies of between 570 and 630 million euros by the end of
- 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
- For previous columns by the author, Reuters customers can
click on [HAY/]
(Editing by Chris Hughes and David Evans)
Keywords: BREAKINGVIEWS GREECE/BANKS
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