Ministry gets top zloty in Zachodni sale
If the valuation does exceed that seen in the BPH deal, the ministry will have secured the highest-ever valuation in a Polish bank privatization.
In its final offer for Zachodni, Allied Irish Bank (AIB) offered to pay more than $500 million for 80% of the bank, which led the ministry to choose it for exclusive sales negotiations in just three days. The deal values Zachodni at more than zl. 2.5 billion ($625 million).
On a per share basis, AIB is offering to pay more than zl. 90, according to sources close to the deal. This means Zachodni could fetch more than the 3.44 times book value paid last autumn for BPH by Bayerische Hypo- und Vereinsbank.
At zl. 92 a share, and assuming Zachodni's year-end book value of zl. 750 million ($187.5 million), the bank would be valued at 3.44 times book value. If the price reaches just zl. 93, however, it will top the BPH valuation.
By comparison, BRE Bank paid just 1.29 times book value when it bought Polski Bank Rozwoju (PBR).
"The state treasury should be very excited," said Denise Vergot Holle, a banking analyst with Merrill Lynch in London. "I don't think that such a ratio could be reached in the (Bank) Pekao sale."
AIB's offer topped a bid from France's Societe Generale, which was a short-listed bidder for Zachodni along with Austria's Raiffeisen Zentralbank. Raiffeisen declined to place a final offer for Zachodni.
Vergot Holle said she was surprised that AIB was willing to make such a rich offer for Zachodni.
"It was fine with BPH, which is the best regional bank, something Zachodni is not," she said.
In addition, Zachodni has experienced management control problems that have contributed to profit revisions. The bank originally projected 1998 net profit of zl. 107 million ($30.57 million), but after its annual audit the result was lowered to zl. 26.5 million ($6.9 million).
Disappointment with the results was the main reason why Raiffeisen decided to pull out of the deal, said a source close to the privatization.
These and other problems, especially ongoing investigations related to bad loan portfolios in several of Zachodni's branches, were one of the reasons the government quickly decided on an investor after final offers were submitted just a week ago, said Henryka Bochniarz, president of Nicom Consulting, which was advising the ministry on the sale.
"It clearly shows that Zachodni needs an owner, and fast," Bochniarz told the Business Journal.
Despite these problems, Zachodni is not a dog with fleas by any means. It has a strong brand name and a large network of 180 branches located in southwestern Poland. Its regional strength was seen as being especially attractive to AIB, which already owns more than 60% of Poznan-based Wielkopolski Bank Kredytowy (WBK).
Bochniarz said the valuation of the bank was not surprising, nor was it over-priced. Last November she told the Business Journal that the government expected to receive a valuation for Zachodni in line with that of BPH.
Zachodni "has huge potential, even bigger considering future synergies with Wielkopolski Bank Kredytowy (WBK)," Bochniarz said. "It's one of the last banks to be privatized, with a large network in western Poland."
The latter is especially important after Poland joins the European Union (EU), Bochniarz added. Combined, Zachodni and WBK would have the fourth largest branch network in Poland with 330 outlets.
And analysts said AIB was a good choice not just because of the price it is willing to pay.
"It's good news," said Jean-Pierre Lambert, banking analyst with Dresdner Kleinwort Benson. "Both for Zachodni and the Polish banking sector."
AIB has already proven its ability to restructure a Polish bank and did a good job with WBK, Lambert said. "Selling Zachodni to WBK will limit fragmentation of the Polish banking sector," he added.
But the question of how closely AIB will be able to integrate WBK and Zachodni is unresolved. According to the Zachodni Information Memorandum, a strategic investor should maintain Zachodni as an independent legal entity, keep its brand name and maintain its Wroclaw-based headquarters.
AIB said its plans for Zachodni were in line with the government's expectations, assuming its final negotiations with the ministry are fruitful.
"That would be totally logical," said David McCrossan, managing director of AIB European Investments. "That's because the brand of the bank is one of its major assets. It would be insane not to use this asset."
McCrossan added that AIB has a long history of operating as a group of independent banks and sees the same holding true in the case of Zachodni and WBK.
Bochniarz added that the obligation of maintaining Zachodni's identity is not something that cannot be easily changed.
"I see Wielkopolski and Zachodni operating as separate entities for two or three years," Bochniarz said. "During this time the investor has to look for the best solutions for both banks."
But ultimately a merger is not out of the question. It's just open as to how it will take place.
"But not necessarily WBK taking over Zachodni," Bochniarz said. "It could be the other way around."
In its final offer for Zachodni, Allied Irish Bank (AIB) offered to pay more than $500 million for 80% of the bank, which led the ministry to choose it for exclusive sales negotiations in just three days. The deal values Zachodni at more than zl. 2.5 billion ($625 million).
On a per share basis, AIB is offering to pay more than zl. 90, according to sources close to the deal. This means Zachodni could fetch more than the 3.44 times book value paid last autumn for BPH by Bayerische Hypo- und Vereinsbank.
At zl. 92 a share, and assuming Zachodni's year-end book value of zl. 750 million ($187.5 million), the bank would be valued at 3.44 times book value. If the price reaches just zl. 93, however, it will top the BPH valuation.
By comparison, BRE Bank paid just 1.29 times book value when it bought Polski Bank Rozwoju (PBR).
"The state treasury should be very excited," said Denise Vergot Holle, a banking analyst with Merrill Lynch in London. "I don't think that such a ratio could be reached in the (Bank) Pekao sale."
AIB's offer topped a bid from France's Societe Generale, which was a short-listed bidder for Zachodni along with Austria's Raiffeisen Zentralbank. Raiffeisen declined to place a final offer for Zachodni.
Vergot Holle said she was surprised that AIB was willing to make such a rich offer for Zachodni.
"It was fine with BPH, which is the best regional bank, something Zachodni is not," she said.
In addition, Zachodni has experienced management control problems that have contributed to profit revisions. The bank originally projected 1998 net profit of zl. 107 million ($30.57 million), but after its annual audit the result was lowered to zl. 26.5 million ($6.9 million).
Disappointment with the results was the main reason why Raiffeisen decided to pull out of the deal, said a source close to the privatization.
These and other problems, especially ongoing investigations related to bad loan portfolios in several of Zachodni's branches, were one of the reasons the government quickly decided on an investor after final offers were submitted just a week ago, said Henryka Bochniarz, president of Nicom Consulting, which was advising the ministry on the sale.
"It clearly shows that Zachodni needs an owner, and fast," Bochniarz told the Business Journal.
Despite these problems, Zachodni is not a dog with fleas by any means. It has a strong brand name and a large network of 180 branches located in southwestern Poland. Its regional strength was seen as being especially attractive to AIB, which already owns more than 60% of Poznan-based Wielkopolski Bank Kredytowy (WBK).
Bochniarz said the valuation of the bank was not surprising, nor was it over-priced. Last November she told the Business Journal that the government expected to receive a valuation for Zachodni in line with that of BPH.
Zachodni "has huge potential, even bigger considering future synergies with Wielkopolski Bank Kredytowy (WBK)," Bochniarz said. "It's one of the last banks to be privatized, with a large network in western Poland."
The latter is especially important after Poland joins the European Union (EU), Bochniarz added. Combined, Zachodni and WBK would have the fourth largest branch network in Poland with 330 outlets.
And analysts said AIB was a good choice not just because of the price it is willing to pay.
"It's good news," said Jean-Pierre Lambert, banking analyst with Dresdner Kleinwort Benson. "Both for Zachodni and the Polish banking sector."
AIB has already proven its ability to restructure a Polish bank and did a good job with WBK, Lambert said. "Selling Zachodni to WBK will limit fragmentation of the Polish banking sector," he added.
But the question of how closely AIB will be able to integrate WBK and Zachodni is unresolved. According to the Zachodni Information Memorandum, a strategic investor should maintain Zachodni as an independent legal entity, keep its brand name and maintain its Wroclaw-based headquarters.
AIB said its plans for Zachodni were in line with the government's expectations, assuming its final negotiations with the ministry are fruitful.
"That would be totally logical," said David McCrossan, managing director of AIB European Investments. "That's because the brand of the bank is one of its major assets. It would be insane not to use this asset."
McCrossan added that AIB has a long history of operating as a group of independent banks and sees the same holding true in the case of Zachodni and WBK.
Bochniarz added that the obligation of maintaining Zachodni's identity is not something that cannot be easily changed.
"I see Wielkopolski and Zachodni operating as separate entities for two or three years," Bochniarz said. "During this time the investor has to look for the best solutions for both banks."
But ultimately a merger is not out of the question. It's just open as to how it will take place.
"But not necessarily WBK taking over Zachodni," Bochniarz said. "It could be the other way around."
