Bespoke Research on China and neighbouring regions, Bixmoor

Bixmoor

Bespoke Research on China and neighbouring regions

Bixmoor specialises in providing bespoke research to business, governments and the financial community on China and neighbouring regions. We seek to build long-term relationships with our clients, based on our expertise, our reliability and our determination to find the right solution.

Thematic (Sector/Industry)

High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased debt in many countries, including a good number in the European Union, whose debt levels are masked by accounting procedures.

High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased debt in many countries, including a good number in the European Union, whose debt levels are masked by accounting procedures.

The Potential for National Financial Default

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/unicaja-banco-sa" target="_blank" data-smartkarma-citation="entities:28379:1" rel="noopener">Unicaja Banco SA (UNI SM)</a> and <a href="https://www.smartkarma.com/entities/liberbank-sa" target="_blank" data-smartkarma-citation="entities:21279:1" rel="noopener">Liberbank SA (LBK SM)</a> will soon finalize their merger after receiving all the authorisations. On 19 July, the Spanish Government gave the green-light to the integration, which is expected to close on 30 July.
<div>
Unicaja, as the purchasing entity, plans to issue around 1,075 million new shares to meet the agreed exchange ratio (2.7705 LBK SM x 1 UNI SM). Unicaja will have a holding of 59.5% in the new bank, while the remaining 40.5% will be distributed among Liberbank shareholders.
<div>
Unicaja will become the fifth largest domestic bank, with assets totaling c. €110 bn, 9,000 employees and 1,554 branches (of which 300 will be closed). Unicaja will record a "badwill" of €2,015 mn in the merger with Liberbank (which trades well below its BV), and will use it to cover the cost of reducing the workforce.
Liberbank's shares are trading at a 0.8% discount (adjusted for the merger ratio).
<ul>
<li>The all-share merger will see Unicaja absorb Liberbank at an exchange ratio of 2.7705 Liberbank shares for 1 Unicaja share.</li>
</ul>
</div>
Although liquidity is thin, recommendation is short UNI SM/long LBK SM. Effective merger is highly likely to happen on 30 July.
</div>

Unicaja Banco SA (UNI SM) and Liberbank SA (LBK SM) will soon finalize their merger after receiving all the authorisations. On 19 July, the Spanish Government gave the green-light to the integration, which is expected to close on 30 July.

Unicaja, as the purchasing entity, plans to issue around 1,075 million new shares to meet the agreed exchange ratio (2.7705 LBK SM x 1 UNI SM). Unicaja will have a holding of 59.5% in the new bank, while the remaining 40.5% will be distributed among Liberbank shareholders.

Unicaja will become the fifth largest domestic bank, with assets totaling c. €110 bn, 9,000 employees and 1,554 branches (of which 300 will be closed). Unicaja will record a "badwill" of €2,015 mn in the merger with Liberbank (which trades well below its BV), and will use it to cover the cost of reducing the workforce.
Liberbank's shares are trading at a 0.8% discount (adjusted for the merger ratio).

The all-share merger will see Unicaja absorb Liberbank at an exchange ratio of 2.7705 Liberbank shares for 1 Unicaja share.


Although liquidity is thin, recommendation is short UNI SM/long LBK SM. Effective merger is highly likely to happen on 30 July.


On 29 December, the Boards of <a href="https://www.smartkarma.com/entities/unicaja-banco-sa" target="_blank" data-smartkarma-citation="entities:28379:1" rel="noopener">Unicaja Banco SA (UNI SM)</a> and <a href="https://www.smartkarma.com/entities/liberbank-sa" target="_blank" data-smartkarma-citation="entities:21279:1" rel="noopener">Liberbank SA (LBK SM)</a> approved at last the merger of both entities. Unicaja, which will absorb Liberbank, will control 59.5% of the resulting entity, while Liberbank will have the remaining 40.5%. On 30 December, the deal presentation took place.
Unicaja + Liberbank will have combined assets pro-forma over €108.9 bn and will become the fifth biggest bank operating in Spain.
The exchange ratio is 0.360845 Unicaja shares per Liberbank share.
<ul>
<li>0.24x implied equity value/BV, 10.4x deal value/EPS (trailing four quarters) and 24.8x deal value/tangible equity upon announcement (25.0x last close).</li>
</ul>
Cost savings are the cornerstone of the project. Unicaja and Liberbank plan to close up to 20% of the branch network. The combined entity expects to have recurring cost savings of approximately €192 mn per year (fully from 2023), which will allow a "significant" improvement in the efficiency ratio by 11 percentage points. The generation of synergies will make it possible to increase EPS by approximately 50% compared to 2023 analysts' estimates.
<ul>
<li>Restructuring costs could reach around €400-500 mn. But now the banks have a stronger capital position to face them. Unicaja's top quality capital ratio is 14.4% and Liberbank's is 14%. Both entities could use their excess capital from 11.5% to increase provisions and improve their coverage rates.</li>
</ul>
This merger has all the chances to succeed, and should close in six to seven months. According to market consensus, it is a win-win textbook operation.
Following the recent drop in the share price of Liberbank, the gross spread is -2.3%. 
Recommendation is Long 1.0 Liberbank/short 0.360845 Unicaja shares.

On 29 December, the Boards of Unicaja Banco SA (UNI SM) and Liberbank SA (LBK SM) approved at last the merger of both entities. Unicaja, which will absorb Liberbank, will control 59.5% of the resulting entity, while Liberbank will have the remaining 40.5%. On 30 December, the deal presentation took place.
Unicaja + Liberbank will have combined assets pro-forma over €108.9 bn and will become the fifth biggest bank operating in Spain.
The exchange ratio is 0.360845 Unicaja shares per Liberbank share.

0.24x implied equity value/BV, 10.4x deal value/EPS (trailing four quarters) and 24.8x deal value/tangible equity upon announcement (25.0x last close).

Cost savings are the cornerstone of the project. Unicaja and Liberbank plan to close up to 20% of the branch network. The combined entity expects to have recurring cost savings of approximately €192 mn per year (fully from 2023), which will allow a "significant" improvement in the efficiency ratio by 11 percentage points. The generation of synergies will make it possible to increase EPS by approximately 50% compared to 2023 analysts' estimates.

Restructuring costs could reach around €400-500 mn. But now the banks have a stronger capital position to face them. Unicaja's top quality capital ratio is 14.4% and Liberbank's is 14%. Both entities could use their excess capital from 11.5% to increase provisions and improve their coverage rates.

This merger has all the chances to succeed, and should close in six to seven months. According to market consensus, it is a win-win textbook operation.
Following the recent drop in the share price of Liberbank, the gross spread is -2.3%. 
Recommendation is Long 1.0 Liberbank/short 0.360845 Unicaja shares.

Media (Bolsamanía, Bloomberg) reported during the weekend that "Spain’s Unicaja is Said to Move Closer to Liberbank Takeover".As a result:
<ul>
<li>
<a href="https://www.smartkarma.com/entities/unicaja-banco-sa" target="_blank" data-smartkarma-citation="entities:28379:1" rel="noopener">Unicaja Banco SA (UNI SM)</a> has confirmed to the National Securities Market Commission (CNMV, the Spanish market watchdog) "preliminary contacts with Liberbank, with the knowledge of the Board of Directors without, for the moment, the participation of external advisers and without having made a decision in this regard."</li>
<li>
<a href="https://www.smartkarma.com/entities/liberbank-sa" target="_blank" data-smartkarma-citation="entities:21279:1" rel="noopener">Liberbank SA (LBK SM)</a> has confirmed "preliminary contacts with Unicaja Banco, without, so far, having adopted any decision in this regard."</li>
</ul>
During Monday's trading session, Unicaja's shares gained 10% whilst Liberbank's gained 16%. Over the last two sessions, investors have booked some profits and the shares of Unicaja have dropped by 8% and those of Liberbank by 4%.
Last year, both banks held conversations regarding a merger, but the conversations stopped mainly about discrepancies on the exchange ratio and the top management positions.
Both banks are well capitalised, but their P/BV is around 0.3x. The merger of both entities would have proforma assets of EUR 108.8 bn, potentially the fifth largest group in Spain, which would allow it to try to acquire Ibercaja Banco (unlisted).
<div>
Recommendation is long Liberbank / short Unicaja, using a 40.4% / 59.6% exchange ratio.
<div>
Risks: the float in Unicaja is currently 28.3%, so there is a short squeeze risk in a position to capture the spread, especially if Abanca enters the fray.
</div>
</div>
Read across: <a href="https://www.smartkarma.com/entities/banco-de-sabadell-sa" target="_blank" data-smartkarma-citation="entities:21295:1" rel="noopener">Banco De Sabadell Sa (SAB SM)</a> seems to be now the Spanish bank with the lowest ROE (even negative), and rumors are that it is being shopped around. A potential operation could be a combination <a href="https://www.smartkarma.com/entities/banco-bilbao-vizcaya-argentari" target="_blank" data-smartkarma-citation="entities:21251:1" rel="noopener">Banco Bilbao Vizcaya Argentari (BBVA SM)</a> - Sabadell.

Media (Bolsamanía, Bloomberg) reported during the weekend that "Spain’s Unicaja is Said to Move Closer to Liberbank Takeover".As a result:


Unicaja Banco SA (UNI SM) has confirmed to the National Securities Market Commission (CNMV, the Spanish market watchdog) "preliminary contacts with Liberbank, with the knowledge of the Board of Directors without, for the moment, the participation of external advisers and without having made a decision in this regard."

Liberbank SA (LBK SM) has confirmed "preliminary contacts with Unicaja Banco, without, so far, having adopted any decision in this regard."

During Monday's trading session, Unicaja's shares gained 10% whilst Liberbank's gained 16%. Over the last two sessions, investors have booked some profits and the shares of Unicaja have dropped by 8% and those of Liberbank by 4%.
Last year, both banks held conversations regarding a merger, but the conversations stopped mainly about discrepancies on the exchange ratio and the top management positions.
Both banks are well capitalised, but their P/BV is around 0.3x. The merger of both entities would have proforma assets of EUR 108.8 bn, potentially the fifth largest group in Spain, which would allow it to try to acquire Ibercaja Banco (unlisted).

Recommendation is long Liberbank / short Unicaja, using a 40.4% / 59.6% exchange ratio.

Risks: the float in Unicaja is currently 28.3%, so there is a short squeeze risk in a position to capture the spread, especially if Abanca enters the fray.


Read across: Banco De Sabadell Sa (SAB SM) seems to be now the Spanish bank with the lowest ROE (even negative), and rumors are that it is being shopped around. A potential operation could be a combination Banco Bilbao Vizcaya Argentari (BBVA SM) - Sabadell.

Liberbank - Unicaja: Merger Conversations, Exchange Ratio

The Boards of both <a href="https://www.smartkarma.com/entities/bankia-sa" target="_blank" data-smartkarma-citation="entities:21252:1" rel="noopener">Bankia SA (BKIA SM)</a> and <a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a> have approved the merger (in fact, the takeover of Bankia by CaixaBank) of both entities to create the biggest domestic bank in Spain.
<ul>
<li>target synergies of EUR 770 mn per year, and EUR 290 mn in extra turnover over the next five years (above my conservative scenario), target RoTE of 8% and efficiency ratio of 47.9%.</li>
</ul>
The exchange ratio has been bang-on the one mentioned in previous insights:
<ul>
<li>Actual 0.6845 shares of Caixabank per Bankia share (vs. the 0.68 mentioned using the implied exchange rates by 9) September).</li>
<li>No rights issue.</li>
</ul>
Recommendation: this merger will close and I recommend setting up the spread long 1 share of Bankia / shorting 0.6845 shares of CaixaBank (the gross spread is 1.6% as I write).
Considering the likely synergies could mean up to nearly 20% in the case of CaixaBank and c. 15% in the case of Bankia. On these grounds, both could be "long only" investment recommendations.
Read across: this merger will put pressure in smaller Spanish lenders, such as <a href="https://www.smartkarma.com/entities/liberbank-sa" target="_blank" data-smartkarma-citation="entities:21279:1" rel="noopener">Liberbank SA (LBK SM)</a> , <a href="https://www.smartkarma.com/entities/unicaja-banco-sa" target="_blank" data-smartkarma-citation="entities:28379:1" rel="noopener">Unicaja Banco SA (UNI SM)</a> , both currently solidly capitalised but barely profitable, and <a href="https://www.smartkarma.com/entities/banco-de-sabadell-sa" target="_blank" data-smartkarma-citation="entities:21295:1" rel="noopener">Banco De Sabadell Sa (SAB SM)</a> with its coveted position in Spanish SMEs. All three are the main candidates in any forthcoming corporate activity, with Liberbank as the main takeover target.

The Boards of both Bankia SA (BKIA SM) and CaixaBank SA (CABK SM) have approved the merger (in fact, the takeover of Bankia by CaixaBank) of both entities to create the biggest domestic bank in Spain.

target synergies of EUR 770 mn per year, and EUR 290 mn in extra turnover over the next five years (above my conservative scenario), target RoTE of 8% and efficiency ratio of 47.9%.

The exchange ratio has been bang-on the one mentioned in previous insights:

Actual 0.6845 shares of Caixabank per Bankia share (vs. the 0.68 mentioned using the implied exchange rates by 9) September).
No rights issue.

Recommendation: this merger will close and I recommend setting up the spread long 1 share of Bankia / shorting 0.6845 shares of CaixaBank (the gross spread is 1.6% as I write).
Considering the likely synergies could mean up to nearly 20% in the case of CaixaBank and c. 15% in the case of Bankia. On these grounds, both could be "long only" investment recommendations.
Read across: this merger will put pressure in smaller Spanish lenders, such as Liberbank SA (LBK SM) , Unicaja Banco SA (UNI SM) , both currently solidly capitalised but barely profitable, and Banco De Sabadell Sa (SAB SM) with its coveted position in Spanish SMEs. All three are the main candidates in any forthcoming corporate activity, with Liberbank as the main takeover target.

CaixaBank - Bankia: Definitive Agreement and Exchange Ratio

Spain

Liberbank is a regional Spanish commercial bank. The Company's business model is retail orientated. It offers its products and services to individuals, SMEs, corporations, as well as public and private institutions across retail banking, business banking, asset management, and bancassurance among others.

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Liberbank SA (LBK SM)

The Potential for National Financial Default

High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased...

Bixmoor

Unicaja/Liberbank: Final Stretch

Liberbank's shares are trading at a 0.8% discount (adjusted for the merger ratio).Albeit liquidity is thin, recommendation is short Unicaja/long...

Jesus Rodriguez Aguilar

Liberbank - Unicaja Agreed Merger

This defensive merger has all the chances to succeed, and should close in six to seven months. It is a win-win textbook operation. Gross spread is ...

Jesus Rodriguez Aguilar

Liberbank - Unicaja: Merger Conversations, Exchange Ratio

Following Bloomberg/media reports Unicaja has confirmed to the National Securities Market Commission (CNMV) "preliminary contacts with Liberbank,...

Jesus Rodriguez Aguilar

CaixaBank - Bankia: Definitive Agreement and Exchange Ratio

The Boards of both Bankia and CAixaBank have approved the merger of both entities to create the biggest domestic bank in Spain.

Jesus Rodriguez Aguilar

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