Unicaja to Buy Rival Liberbank in Boost to Spanish Deals

(Bloomberg) -- Spain’s Unicaja Banco SA agreed to buy rival Liberbank SA in an all-share deal, adding to a flurry of deal-making in the nation’s finance industry.

Unicaja will pay 1 new share for every 2.7705 of Liberbank shares, issuing as much as 1.08 billion euros ($1.3 billion) of stock to fund the purchase, according to a statement on Tuesday. Unicaja shareholders will have 59.5% of voting rights in the new bank compared to 40.5% for Liberbank’s investors.

Spain is at the forefront of a wave of banking consolidation in Europe, driven by a weak economy and persistent low interest rates. Shareholders of CaixaBank SA and Bankia SA voted earlier this month to merge, while Banco Bilbao Vizcaya Argentaria SA and Banco de Sabadell SA recently held talks but failed to strike a deal.

The combined Unicaja and Liberbank will have assets of 109 billion euros, making it the fifth-largest banking operation in Spain if regulators approve the takeover of Bankia by CaixaBank. Mediobanca Banca di Credito Finanziario SpA advised Unicaja while Deutsche Bank AG advised Liberbank, according to the merger project posted on Unicaja’s website.

The new bank will have its headquarters in Malaga and will be led for the first two years by Unicaja Chairman Manuel Azuaga, after which he will step down. Liberbank CEO Manuel Menendez will maintain the same role in the new entity. The bank will change its corporate structure, removing executive powers from the chairmanship in no more than two years and voting on whether Menendez should keep his job as CEO.

Liberbank fell as much as 7.6% in Madrid trading, and was down 6.8% as of 1:29 p.m. Unicaja reversed earlier gains and was 2.7% lower.

Pre-tax cost savings will total about 192 million euros a year by 2023 and earnings per share will be about 50% higher than market estimates for that year, according to a statement released on Wednesday.

The combined bank will have a fully-loaded CET1 ratio of 12.4% after assuming restructuring costs of 1.2 billion euros. The lender is targeting a ratio of 12.5% by the second half of next year, which may rise to about 13% if the European Central Bank approves its request to apply an internal ratings-based model, Chairman Azuaga said in an investor call.

The bank’s buffer over minimum capital requirements will allow it to pay out 50% of profit as dividends once the pandemic crisis eases and possibly carry out share buybacks, he said.

Second Try

Unicaja and Liberbank started talks in December 2018, only to put them on hold five months later amid disagreements on the shareholding structure and the distribution of boardroom power. Discussions were rekindled in October after regulators eased some requirements on capital in response to the Covid-19 crisis.

Spain has experienced a rapid concentration of banks in the past decade, propelled first by the financial crisis a decade ago and then by the pandemic. The number of lenders has fallen to 12 from from 45 in 2010, according to Standard & Poor’s. If the two tie-ups currently on the table go ahead, the total will fall to 10.

Spanish banks, heavily dependent on mortgages, are looking to lower costs as the prospect of negative interest rates for years weighs on their outlook for lending income. The country’s economy, with its reliance on tourism, has been particularly affected by the lockdowns and travel bans imposed to fight the pandemic.

Consolidation

Consolidation is picking up elsewhere in European banking. Italy’s Intesa Sanpaolo SpA, which recently completed taking over UBI Banca, agreed to buy Swiss private bank Reyl & Cie. SA. There’s the potential for even bigger deals to come, with analysts speculating on a tie-up between Societe Generale SA and BNP Paribas SA.

France’s Credit Agricole SA made an unsolicited 737 million-euro offer for Italy’s Credito Valtellinese in November. The Italian bank, known as Creval, hasn’t said whether it will accept. Meanwhile, Italy’s government is looking for a way to sell its majority stake in Banca Monte dei Paschi di Siena SpA.

Banco Santander SA, Spain’s biggest lender, plans to sit out the wave of banking mergers sweeping its home market, opting instead to expand its digital platform, Chairman Ana Botin said.

Malaga-based Unicaja, which was listed in 2017, has a strong presence in southern Spain, with 1,046 branches and just under 6,000 employees as of June 30. Liberbank, the result of a merger of four savings bank with its origins in northern Spain, has 576 branches and a workforce of just over 3,000. Unicaja had a market value of 1.12 billion euros and Liberbank’s was 807 million euros.

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