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Erste’s Main Holders Lose Influence in Share Sale

July 2 (Bloomberg) -- Erste Group Bank AG, Austria’s biggest lender, sold 661 million euros ($863 million) of new shares to help repay state aid in a transaction that reduces the stakes of its main shareholders.

Erste agreed to sell 35.2 million shares, or 8.9 percent of outstanding stock, at 18.75 euros each to institutional investors today, the Vienna-based lender said in a statement. Shareholders can subscribe to buying four new shares for every 45 they own over two weeks starting tomorrow. A group of owners holding a combined 37 percent stake waived the right to new shares, allowing their holdings to be diluted and making the stock available to outside investors, Erste said. The bank announced the sale last week to help repay state aid.

“The slightly complicated two-step structure essentially covers the placement of the shares not taken” by the key shareholders and “reduces the execution risk of the subsequent subscription offer,” Ronny Rehn, an analyst at Keefe, Bruyette & Woods in London, said in an e-mailed report to clients. “We think it’s worth participating at the 19 euro per share level.”

Erste, trailing UniCredit SpA and Austria’s Raiffeisen Bank International AG in eastern Europe, is struggling to balance declining lending revenue with cost cuts and reduce bad debt charges as central and eastern European economies remain mired in slow growth. Chief Executive Officer Andreas Treichl pledged to bolster earnings this year, mostly by turning around the bank’s debt-ridden Romanian unit.

‘Pre-Placement’

The deal commenced yesterday, with Erste offering the shares in a range from 18.50 euros to 19.15 euros to institutional investors. The allotment will be reduced by the amount that existing shareholders exercise their rights, Erste said. Should more than 50 percent of existing shareholders opt in to the offering, Erste Stiftung, the biggest shareholder with 20 percent of the company, will sell stock directly to the institutional investors to close the gap.

The offer price of 18.75 euros was an 8.1 percent discount to yesterday’s closing price. Erste fell 2 percent to 20.01 euros at the 5:30 p.m. close in Vienna, widening losses this year to 17 percent. The European benchmark Stoxx 600 Banks Index fell 0.4 percent since Dec. 31.

Waiving Rights

Erste Stiftung was established in 1993 and has been Erste’s biggest shareholder since. Among its goals is “to secure Erste Group Bank’s independent future as its principal shareholder,” according to its most recent bond prospectus. The foundation also funds social and art projects in Austria and eastern Europe. It has pooled its stake with other holders, bringing the voting share it controls to 26 percent.

Erste didn’t identify the shareholders that waived their rights in the share sale. Erste Stiftung and a group of Austrian savings banks are among them, Michael Mauritz, a spokesman, said by telephone. Erste’s second-biggest investor is Spain’s CaixaBank, which holds a 9.9 percent stake.

During this quarter, Erste plans to pay back the 1.2 billion euros in Austrian government aid it received in 2009, as well as 559 million euros in capital linked to the assistance, it said last month.

The rights offer is managed by JPMorgan Chase & Co., Morgan Stanley and Erste.

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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