Two of Greece's major banks – Alpha Bank and Eurobank EFG – have formally announced their planned merger, which will create the largest bank in Greece, and the third largest bank in Bulgaria.
"The Boards of Directors of Alpha Bank and Eurobank EFG announce that they have reached agreement on a combination of Alpha Bank and Eurobank EFG by way of a merger," the two banks said in a joint statement Monday, adding, "Consolidation of two highly complementary private sector banks with substantial synergies and a clear strategic rationale which will play a vital role in the economic recovery of Greece."
The statement points out that the new bank will have "leading positions" across all major banking segments in Greece, and will enjoy "an outstanding presence" in Southeastern Europe, with an aggregate network of more than 1 300 branches across 8 countries and top 3 market positions in Bulgaria, Cyprus, Romania and Serbia.
In addition to Greece, the new group is claiming leading position in its core international markets with gross loans of EUR 6.9 B in Romania; EUR 5.3 B in Cyprus; EUR 3.9 B in Bulgaria and EUR 2.2 B in Serbia.
Eurobank EFG and Alpha Bank are among the five Greek banks with a combined share of 30% of the Bulgarian banking services market. Eurobank EFT owns Postbank Bulgaria, while Alpha Bank has its subsidiary Alpha Bank Bulgaria.
The Eurobank EFG-Alpha Bank merger will create the third largest bank in Bulgaria with assets totaling BGN 7.9 B (EUR 4 B). As of end-June 2011, Eurobank EFG's Postbank has total assets amounting of BGN 5.85 B, while Alpha Bank Bulgaria's assets come to BGN 2.08 B.
The third largest bank in Bulgaria at present is United Bulgarian Bank (UBB) with assets totaling BGN 7.014 B, which itself is also Greek-owned – it is a subsidiary of the National Bank of Greece (NBG).
The banking group to be created from the merger of Alpha Bank and Eurobank EFG will be among the top 25 largest euro zone banking groups with pro forma total assets of EUR 146 B.
Under the terms of the deal, Eurobank shareholders will receive five new Alpha Bank ordinary shares for every seven of their own shares. The proposed exchange ratio will result in a pro forma ownership split of the new group of 57.5% by existing Alpha Bank shareholders and 42.5% by existing Eurobank EFG shareholders.
According to analysts, Eurobank will be paying a 27.5% premium for Alpha Bank shares, although technically Alpha will be absorbing Eurobank under Greek merger law, The Wall Street Journal wrote.
The combined group had 2010 pre-provision income of EUR 2.6 B on a pro forma basis; the estimated annual pre-tax synergies amount to approximately EUR 650 M fully phased within three years, with an estimated net present value of approximately EUR 3.4 B.
The combined bank would have a pro forma core Tier 1 ratio of 14%, even after expected write-downs for an upcoming distressed debt exchange involving Greek government bonds. Its significantly enhanced capital buffers through a proposed comprehensive capital plan equivalent to approximately EUR 3.9 B.
The new bank's diversified shareholder base is underpinned by three core shareholders representing the interests of the Costopoulos family, the Latsis family and Paramount Services Holding Limited ("Paramount", a shareholder of Alpha Bank, is a company representing the business interests of the most prominent family in Qatar); each of which supports the proposed merger and capital plan, the joint statement of the banks said.
The Board of Directors and the Executive Committee of the merged Alpha Bank-Eurobank EFG entity will be chaired by Yannis Costopoulos and the management team will be led by two co-CEOs, Demetrios Mantzounis who will be in charge of control and central functions and Nicholas Nanopoulos who will be in charge of business functions.
"I am delighted that Alpha Bank and Eurobank EFG have agreed to come together and create the Greek bank of reference and a significant new force in European banking," Yannis Costopoulos, Chairman of Alpha Bank and proposed Chairman of the new group, is quoted as saying.
"At a time when it is hoped Greece will experience the first signs of a recovery through the implementation of reforms and the support of its European partners, the new bank will aim to contribute to the resumption of growth in Greece and our country's connectivity with its neighbouring markets in Southeastern Europe,"he added. "This merger is a decisive step in the strengthening of the private sector economy at a crucial juncture in Greece's history, demonstrating the ongoing support of leading international investors. Finally, I am delighted to welcome Paramount's increased participation in the enlarged bank".
"I welcome the proposed merger and the participation of Paramount as it creates a new Greek and regional banking champion, combining a strong capital base and a talented and committed management team with extensive complementary skills and capabilities,"commented Efthymios Christodoulou, Chairman of Eurobank EFG, adding, "I am confident that the new combined entity will act as an important agent for the economic development of the country. It is also well placed not only to withstand the current economic turbulence but also to create new opportunities and play a pivotal role in the future growth of the region."
The merger is expected to be approved in Extraordinary General Meetings of Alpha Bank and Eurobank EFG in November with completion of the legal merger effected by mid-December 2011. Citibank and JP Morgan are acting as financial advisers to Alpha Bank. Barclays Capital, Goldman Sachs International and Rothschild are acting as financial advisers to Eurobank EFG. The merger will be fully sealed in the first half of 2012 with contemplated capital issuance and MCN issuance.