Rhetoric softens in ongoing BRE/Handlowy merger battle
The battle among shareholders over the merger between Bank Handlowy and BRE Bank is still far from over, but last week brought the first signs of a slight thawing on this cold war front.
Four months ago, Handlowy and BRE Bank announced the intention to merge, forming one of the nation's largest banks with an estimated zl. 30 billion ($750 million) in total assets. But soon after the announcement, two principal Handlowy shareholders, the Treasury Ministry and majority state-owned Powszechny Zaklad Ubezpieczen (PZU) counterattacked complaining the price tag was too cheap and saying they would block the deal.
Although both sides have given little ground during recent months, last week the dialogue turned away from harsh words as shareholders prepare for the decisive merger vote during Handlowy's general shareholders meeting in three weeks.
"Both sides softened their positions, but it's my opinion PZU is interested in one thing cash," said Adam Kalkusinski, a salesman with Wood & Co.
That essentially has been the bone of contention since the merger was announced in July. Under the initial merger terms, bank managers agreed to swap 2.6 shares in Handlowy for one share in BRE Bank. PZU and the ministry with a combined 12% stake in Handlowy took umbrage saying the share-swap ratio was undervaluing Handlowy and would give Commerzbank control of the new entity at bargain-basement prices. Commerzbank currently holds a 48% stake in BRE Bank and 10% in Handlowy, which would give the German bank about 28%, and the largest stake, in the new entity.
A swap ratio of 1:1.7 was a more acceptable pricetag, PZU said. Although bank managers countered that such a ratio would essentially kill the deal, they agreed to slightly modify the parity ratio to 2.4 Handlowy shares for one BRE Bank share in October. In addition to Commerzbank, Handlowy shareholders J.P. Morgan (16%), Zurich Financial Services (7.4%) and Swedbank (5%) have said they support the merger proposal, according to Handlowy. That gives the combined block less than 40% of votes in the upcoming shareholders meeting, far less than the required 75% to approve the merger. On the other side, PZU with 5.03% and the state treasury with 6.88%, according to Handlowy figures, officially command less than 12% of votes. But many market watchers speculate the opposition could have additional votes among small shareholders.
Last week, as both sides expressed confidence they could gather enough votes before the December vote, chieftains appeared to be looking for some middle ground. During a two-hour press conference in which little of substance was discussed, PZU angled toward conditions under which it might give the merger the nod.
"We want to be a long-term stable investor," said Wladyslaw Jamrozy, PZU's president. That means being treated equally with the four core investors, Commerzbank, J.P. Morgan, Zurich Financial Services and Swedbank, he explained.
PZU inherited its stake from the state treasury during a capital increase in March. The state's typical, post-privatization role has been as a passive shareholder. But in Handlowy's merger, PZU and the treasury have complained of not being included in the planning stages. Grzegorz Wieczerzak, president of life insurer PZU Zycie, further spelled out the conditions.
"Either we will have an influence over the bank's management, or we will pull out of the bank," Wieczerzak said. "In this case the price will be the decisive factor."
Once the merger takes place, PZU's convertible bonds would automatically divest and the insurer would hold more than 17% in Handlowy, making PZU the second-largest shareholder after Commerzbank, Wieczerzak said.
Both Wojciech Kostrzewa, president of BRE Bank, and Cezary Stypulkowski, president of Handlowy, said they didn't see any major obstacles preventing PZU from joining the group of core investors.
"We have always said that the presence of Poland's largest financial institution will be welcome," Kostrzewa said. "I don't have any problem with PZU joining the group of stable investors, but the decision has to be made by the other shareholders."
Stypulkowski said he shared that view, adding that "PZU can become a serious shareholder."
"I definitely see it as a bow from Stypulkowski," said Marek Juras, banking analyst with Erste Securities Polska. "But since he kept ignoring them, one can't expect that the situation can drastically change right now."
Last week, the Banking Supervision Committee rippled the waters when it said it would allow Commerzbank to extend its holding in the merged bank to more than 33%. PZU has also applied with the banking supervisor to hold 20-25% in the new entity, but is still awaiting a decision.
If PZU does not get a green light from bank supervisors before the merger goes through, the insurer last week said it would pull out of Handlowy.
"It's a turning point, because it's perceived as a support of the central bank for the merger," said Jean-Pierre Lambert, an analyst with London-based HSBC.
PZU said it was currently negotiating Handlowy's share price with Commerzbank. If those negotiations fail, market watchers said PZU could block the merger.
"I'm convinced PZU or its allies has enough shares to block the merger," said Kalkusinski of Wood & Co. "But it could happen that an agreement can be reached shortly before the shareholders meeting."
