Banco Santander SA, Spain’s biggest lender, agreed to buy KBC Groep NV’s Kredyt Bank and combine it with its Polish division to create the country’s third-biggest lender valued at about 5 billion euros ($6.7 billion).
Santander will hold 76.5 percent of the merged lender and KBC about 16.4 percent, the two banks said today in an e-mailed statement. The transaction, funded with shares of the Bank Zachodni WBK unit Santander bought last year, values Kredyt at about 4.3 billion zloty ($1.4 billion). Kredyt’s stock gained the most in 18 years in Warsaw trading.
Santander, led by Chairman Emilio Botin, is expanding in Poland to help diversify its business across 10 markets from Brazil to the U.K. as profit slumps at home following Spain’s property crash. Chief Financial Officer Jose Antonio Alvarez has said the Polish market looks similar to Spain’s in 1990, before lending grew more than fivefold over the next 15 years.
“It looks like a very good and smart transaction for Santander, a non-cash transaction that allows them to maximize scale and synergies in Poland,” said Andrea Filtri, an analyst at Mediobanca SpA in London.
Kredyt Bank surged 18 percent to 14.1 zloty at the close in Warsaw. KBC rose 4.7 percent to 17.42 euros while Santander was little changed at 6.27 euros. Zachodni fell 1.7 percent.
The agreement is based on an exchange ratio of 6.96 shares of Santander’s Bank Zachodni WBK unit for every 100 shares of Kredyt. That values Kredyt at 15.75 zloty a share and Zachodni at 226.4 zloty a share at current prices, the banks said.
Other minority investors will hold 7.1 percent of the merged lender. Zachodni will issue new shares that will be offered to KBC and Kredyt Bank shareholders in exchange for their shares, the banks said.
Santander said it has committed to buy a further 5 percent of the combined bank as it helps KBC reduce its stake to below 10 percent. KBC said it plans to sell its remaining stake. The European Bank for Reconstruction and Development said on its website today it was asked to invest as much as 80 million euros in a share sale by Zachodni.
The Spanish lender plans to deliver annual growth rates of 15 percent to 20 percent at the Polish business and is targeting profit of 3.1 billion zloty by 2015. Santander expects 322 million zloty in efficiency improvements in Poland by 2015 as it “optimizes” the branch network, cuts marketing and administrative costs and operates a single computer platform.
“This is a deal that works for both sides,” said Marcin Materna, an equity analyst at Bank Millenium SA brokerage in Warsaw. Santander “is buying a bank that will be worth a lot more once it’s brought up to Zachodni’s standards,” he said.
The sale of Kredyt is part of KBC’s strategy of repaying the 7 billion euros of rescue funds the company received from the Belgian government during the credit crisis.
“Difficult times have forced us to make difficult choices,” Chief Executive Officer Jan Vanhevel said in a statement.
The combined bank will have 3.5 million retail customers with a 9.6 percent share of deposits and 8 percent of loans, the lenders said. The merger will broaden the lender’s product line and increase effectiveness, Zachodni said.
“With this transaction, Banco Santander will significantly strengthen its presence in Poland, one of the most dynamic economies in Europe, obtaining the critical mass we seek in core markets,” Botin said in a statement. The impact on Santander’s core capital ratios will be less than 5 basis points, the bank said. A basis point is one-hundredth of a percent.
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“The deal fits with Santander’s strategy of increasing its foothold in targeted growth markets and leverage on the initial acquisition of Zachodni,” Antonio Ramirez, an analyst at Keefe Bruyette & Woods in London, said in a research note today.
Zachodni has 622 branches and employs 9,383 workers with total assets of 59.9 billion zloty, according to the statement. Kredyt Bank, which has assets of 42 billion zloty, had 373 Polish branches with 4,963 staff at the end of 2011.
As part of the transaction, Santander also agreed to buy Zagiel, KBC’s consumer finance arm in Poland, the banks said. KBC will continue to provide Swiss franc financing for three years under existing conditions, they said.
Santander completed the acquisition of Zachodni in March last year, paying about 4 billion euros for the lender after Allied Irish Banks Plc put its controlling stake on sale to bolster a balance sheet depleted by Ireland’s real-estate slump.