MADRID (Reuters) - Spain's Caixabank CABK.MC is considering a bid for Bankia BKIA.MC that could value the state-controlled lender at around 4 billion euros ($4.75 billion), a source with direct knowledge of the merger talks said on Monday.
Caixabank is considering offering a premium of between 15% and just above 20% over Bankia’s average share price in the last three months, the source said. The deal would create Spain’s biggest domestic bank, with more than 600 billion euros in assets.
The source, and another with knowledge of the ongoing talks, said the terms of the merger could be announced as soon as this week, but were still not closed.
Bankia, Caixabank and the Economy Ministry all declined to comment. The state holds a 61.8% stake in Bankia.
Banks across Europe are struggling to cope with record low interest rates and the economic downturn sparked by the COVID-19 pandemic, leading analysts to predict more tie-ups to cut costs.
A premium range of between 15% and 22%, and the closing date for the average on Sept. 3, the day before the news of the deal emerged, would value Bankia at between 1.21-1.28 euros per share.
That is equivalent to a market value of between 3.7 billion euros and 3.9 billion euros, below the current market price of 4.2 billion euros.
Since news of the merger first emerged, shares in Bankia have risen around 33%, while Caixabank has gained 11%, giving them a combined market capitalisation of 16.2 billion euros.
BADWILL OF 8 BLN EUROS
The two sources with knowledge of the matter said Caixabank could generate around 8 billion euros in badwill - a paper loss that occurs when an asset is bought below its book value - to help offset restructuring costs and build up provisions.
The deal is expected to lead to hefty job losses and kick off a new wave of industry consolidation in Spain and Europe.
The European Central Bank is lowering the bar for bank mergers in the euro zone, hoping to encourage a wave of consolidation in a sector plagued by low profits and unresolved issues inherited from the last financial crisis.
As part of the deal, Bankia, which was bailed out by the state in a 22.4 billion euro rescue during Spain’s financial crisis in 2012, could be dropped as a commercial brand after a possible transitional period, one of the sources said.
The exact roles of the future chairman of the merged bank Jose Ignacio Goirigolzarri and Chief Executive Gonzalo Gortazar were still being discussed, both sources said.
“Gonzalo will be in charge of the bank and Goirigolzarri’s role as potential executive chairman is still being defined,” one of them said.
Reporting by Jesus Aguado; Editing by Ingrid Melander and Jan Harvey
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