CaixaBank SA, Spain’s fourth-biggest lender, agreed to buy Banca Civica SA, a group of former savings banks, for 977 million euros ($1.3 billion) as an overhaul of the nation’s financial industry gathers pace.
CaixaBank’s all-stock offer values Civica at 1.97 euros a share, or 0.35 times book value, the buyer said in a statement late yesterday. The transaction, in which Madrid-based Civica investors get five CaixaBank shares for every eight of their shares, is priced 11 percent below its March 23 closing price.
Adding Civica’s 72 billion euros of assets will create a lender with 231 billion euros in loans and 179 billion euros of deposits, Barcelona-based CaixaBank said, giving it the biggest domestic banking business in Spain and the opportunity to squeeze out cost savings. Chairman Isidro Faine said Jan. 27 he expected a “wave of mergers” as the government pressures lenders into deals by making them recognize losses on real estate that piled up during Spain’s property crash.
“It looks like a good deal for CaixaBank at a low price,” Nuria Alvarez, an analyst at Renta 4 Banco in Madrid, said in a phone interview. “It’s clear there’ll be plenty of scope for cost adjustments in terms of staff and offices.”
Civica dropped 16 percent to close at 1.86 euros in Madrid after both stocks were suspended yesterday. CaixaBank fell 2.8 percent to 3.01 euros, reversing earlier gains of as much as 3.3 percent.
‘Solid Growth Potential’
The share valuation for Civica in the transaction is 27 percent lower than the 2.70 euro-per-share price of its initial public offering in July, in which it raised 600 million euros. CaixaBank has a market value of 12.1 billion euros.
“The operation creates value for shareholders of both banks, generating a bank with solid growth potential and a stronger future for CaixaBank amid a particularly difficult market climate,” Faine said in an e-mailed statement.
The transaction is expected to close in the third quarter and will generate cost savings and other benefits of 540 million euros by 2014, CaixaBank said, adding the deal can be completed without government money. The bank estimates net costs for restructuring the combined business at 1.1 billion euros.
“I do accept that it’s aggressive, but we want to be aggressive in terms of cost synergies,” Juan Maria Nin, CaixaBank’s chief executive officer, said on a webcast for analysts today.
He said 20 percent of the cost synergies would come from CaixaBank and 80 percent from Civica. CaixaBank has met its market share goals and doesn’t have “any appetite” for more growth through acquisitions for now.
CaixaBank will make a “value adjustment” for Civica assets of 3.4 billion euros that will be charged against reserves, meaning there will be no impact on earnings, the lender said.
Under the terms of the offer, the combined bank will have a pro-forma Basel II core capital ratio based on December numbers of 10.4 percent, CaixaBank said in an e-mailed statement.
The transaction won’t prevent CaixaBank from meeting the European Banking Authority’s 9 percent core capital ratio requirement by June, the bank said. The ratio of bad loans to total lending at the combined bank will be 5.5 percent.
CaixaBank said it intends to maintain its dividend at 0.231 euros per share in 2012. La Caixa, CaixaBank’s parent, will maintain control of the bank with a 61 percent stake after the conversion of bonds that automatically convert into shares and the repurchase of Civica preference shares, it said. The four savings banks that are Civica shareholders will become CaixaBank investors with a 3.4 percent stake, the bank said.
The government’s new rules pushing banks to make bigger provisions for real-estate losses are designed to encourage mergers and help the industry cut scale and costs. Civica, a lender formed from the combination of four savings banks in regions including Navarra, Andalusia and the Canary Islands, has to make gross provisions of about 1.25 billion euros because of the order, compared with pre-provision profit last year of 274 million euros.