OP-Pohjola Group, a Finnish cooperative banking group, made a voluntary bid for the shares of its publicly traded subsidiary Pohjola Bank Oyj. The stock soared as much as 19 percent in Helsinki trading.
OP-Pohjola offered 16.80 euros a share, valuing the deal at 3.4 billion euros ($4.6 billion), the Helsinki-based company said today. That represents a premium of about 30.5 percent to the volume-weighted average price of Pohjola Bank’s A-shares over the past 12 months, OP-Pohjola said. The group already holds 37.2 percent of the share capital and 61.3 percent of the votes in Pohjola Bank.
Merging the banks will help manage their assets and debts as the regulatory environment changes, OP-Pohjola said. Banks in Europe are consolidating as policy makers work to pass legislation creating a euro-area bank-failure authority. At the same time, the European Central Bank is taking over supervision of the bloc’s biggest lenders. OP-Pohjola is the only Finnish bank to be supervised by the Frankfurt-based central bank.
“A model consisting of two different types of ownership structures is no longer functional,” OP Chief Executive Officer and Pohjola Bank Chairman Reijo Karhinen said in the statement. “We will be offering customers better service through an even stronger group.”
Shares of Pohjola jumped as much as 19 percent to 16.98 euros on the Nasdaq OMX Helsinki, their steepest intraday advance since May 2010 and the highest price since at least October 1992. The stock rose 18 percent to 16.83 euros as of 3:24 p.m. Finnish time, valuing the company at 5.39 billion euros.
After the merger, the lenders will save about 20 million euros in costs and boost revenue by about 30 million euros, Ari Lampinen, senior vice president in corporate planning at OP-Pohjola, said on a call with investors.
“This is not a synergy gain as such, this is more of a long-term strategic move we need to do now,” Lampinen said. “The regulatory environment is changing very dramatically and also our competitors are operating at higher capitalization levels.”
Pohjola Bank, which has acted as a central bank to the OP-Pohjola Group, has been publicly traded since 1989. JPMorgan Chase & Co. is acting as financial adviser to OP-Pohjola, while Pohjola Bank’s Capital Markets Financing department is acting as lead manager of the tender offer, OP-Pohjola said. Pohjola Bank has appointed Deutsche Bank AG as its financial adviser.
Fourth-quarter net income rose 94 percent from a year earlier to 134 million euros, Pohjola Bank said today. Earnings rose after costs were cut and as the lender improved its banking and non-life insurance business, it said. The Financial Supervisory Authority “sees no obstacles” to the deal, Lampinen said.
After the bid, Fitch Ratings affirmed OP-Pohjola’s A+ credit rating.
OP-Pohjola proposed that Pohjola Bank’s common-equity core tier 1 target increased to 15 percent by the end of 2016 and that its dividend payout ratio be decreased to 30 percent until Pohjola Bank’s core tier 1 ratio reaches the 15 percent target.
“We have done very careful analysis of the price, the price is based on the prospects of the standalone Pohjola Bank,” Lampinen said. “We have offered a very attractive price.”