Abu Dhabi Megabank Deal Poised to Shatter Mideast M&A Record

  • NBAD, FGB merger may create lender with $30 billion market cap
  • Some large M&A deals have failed to conclude in recent years

Abu Dhabi’s planned combination of two of its largest banks could set a record as the biggest merger and acquisition deal in the Middle East -- if it concludes.

National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC said this week that they are in talks to create the region’s largest lender with assets of about $170 billion and a combined market value of almost $30 billion. While the structure of the transaction hasn’t been announced, NBAD’s market capitalization of $13.5 billion and FGB’s at $15.5 billion would make it the biggest yet between two Middle Eastern companies, according to data compiled by Bloomberg.

Abu Dhabi may structure the deal as a merger of equals and it’s unlikely to take the form of a takeover of NBAD by FGB, people familiar with the matter said on Wednesday. The emirate is backing the merger because it’s keen to create a bank that could compete with Qatar National Bank SAQ and expand overseas, the people said.

Mergers and acquisitions in the Middle East have been patchy in recent years with some of the region’s biggest transactions failing to close. Emirates Telecommunications Corp. ended talks to buy a majority stake in Zain, Kuwait’s biggest phone company, for $12 billion in 2011, while EFG-Hermes Holding SAE’s agreement to create the largest Arab investment bank with Qatar’s QInvest LLC collapsed in 2013 after the deal didn’t get Egypt’s regulatory approval.

"The potential NBAD and FGB merger is a hugely significant deal between two leading companies, presaging possible future consolidation in the sector," said Emad Mostaque, a London-based strategist at emerging-markets consultancy company Ecstrat Ltd. "Unlike other deals, such as the Zain and Etisalat proposal, the cultures and key decision makers are aligned."

Working Group

A working group of senior executives from each bank is reviewing the commercial, structural and legal aspects of the deal, according to a statement from the banks. If the deal goes ahead, it would mark the United Arab Emirates’s first major banking-industry merger since National Bank of Dubai and Emirates Bank International combined to create Emirates NBD PJSC in 2007.

"There have been only few transactions of this size in the region and this should be seen as the start of consolidation, not only in U.A.E. but in other Gulf countries," said Anshul Gupta, a partner at Dubai-based investment firm Al Masah Capital Management Ltd. "Hopefully governments will look up to such consolidation to improve efficiencies and productivity."

Deal Value

The value of deals is on the rise, climbing to the highest level since the final three months of 2014 during the second quarter, as crude’s more than 50 percent plunge since the middle of 2014 pushes investors to sell assets. The value of transactions in the Middle East and Africa have climbed 11 percent in 2016 compared with a year earlier to $381 billion, according to data compiled by Bloomberg.

This week, a United Arab Emirates-based investor group led by Emaar Properties PJSC Chairman Mohamed Alabbar agreed to buy Kuwait Food Co. shares from its majority stockholder for $2.36 billion, ending years of discussions with multiple parties including KKR & Co. and CVC Capital Partners Ltd.

Saudi International Petrochemical Co. and Sahara Petrochemicals Co. are also considering reviving a merger plan after ending talks in 2014 to create a $5.8 billion company, people with knowledge of the matter said in May.

The "pipeline is very strong and there are a lot of deals happening," Omar Iqtidar, Citigroup Inc.’s head of investment banking in the Middle East, said in an interview last month.


The NBAD and FGB merger could lead to revenue synergies of 6 percent to 12 percent and cost synergies of as much as 28 percent, according to Sanjay Uppal, who was chief financial officer when Emirates Bank and National Bank of Dubai PJSC merged to form Emirates NBD in 2007.

“The deal may fall apart if the projected synergies that the merger generates are not meaningful,” said Shabbir Malik, a banks analyst at EFG-Hermes. “Moreover disagreement on the split of the board and appointment of key management positions in the new entity is also likely to be a challenge for this deal."

Depending on the final value of the combination, it may surpass the Middle East’s biggest deal including foreign buyers, which is currently Lafarge SA’s $15 billion purchase of OCI Cement from Egypt’s Orascom Construction in 2007, according to data compiled by Bloomberg.

The merger would also create a lender whose market value may exceed the likes of Credit Suisse Group AG, Standard Chartered Plc or Deutsche Bank AG. The combined entity would control more than a quarter of lending of publicly banks in the U.A.E., according to data compiled by Bloomberg.

‘Compelling Fit’

"There appears to be a compelling strategic fit between the two banks," said Doug Bitcon, a fund manager at Rasmala Investment Bank Ltd. in Dubai. "Both parties are bringing value to the table."

It could also lead to more takeovers and combinations in the country’s banking industry, according to analysts from EFG-Hermes and Emirates NBD. About 50 local and international lenders in a country of about 9 million face declining government spending, slowing economies and falling asset quality amid the slump in oil.

"It is not a secret that the U.A.E. is overbanked and there needs to be some consolidation," Bitcon said. "Historically, this has been difficult to achieve due to the spread of investors with different interests."

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