European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Liberbank (LBK SM): Running to Stand Still

Event-Driven

According to <a href="https://www.elconfidencial.com/tags/temas/noticias-de-unicaja-2888/" target="_blank" rel="noopener">media</a>, a group of shareholders of both <a href="https://www.smartkarma.com/entities/liberbank-sa" target="_blank" data-smartkarma-citation="entities:21279:1" rel="noopener">Liberbank SA (LBK SM)</a> and <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> are urging to again open negotiations to merge both banks and there is reportedly consensus for an exchange ratio of 59 Unicaja/41 Liberbank. The combined bank would have pro-forma assets of c. EUR 98 billion, thus becoming the 6th top domestic player.
Both Abanca and Unicaja need to gain scale and capture the synergies that would come with the acquisition of Liberbank. The buyer will surely be spared from the next round of consolidation in the Spanish banking sector.
Since last negotiations (abruptly finished in May), both banks have strengthened its solvency and have CET1 fully loaded ratios over 13%. Liberbank and Unicaja are succeeding in the cleansing of their balance sheets from NPAs (more than EUR 2 billion in the last year), moreover, an increase in the value of their bond portfolios is also helping. This would mean that the ECB would not require a massive rights issue to strengthen the capital of the merged entity. A EUR 500 million contingent convertibles (CoCos) issue and another EUR 300 million in subordinated debt would be enough.
A further catalyst is that Fundación Unicaja, the main shareholder of Unicaja must reduce its shareholding percentage in Unicaja from c. 50% to below 40% before the end of 2020. A merger with Liberbank would help to achieve this goal.
The operation would be structured as an acquisition of Liberbank by Unicaja, with payment in new Unicaja shares, in my view.
Assuming the PV of cost synergies is 778 million (see calculations under "Synergies") and that they are evenly split between Liberbank and Unicaja, EUR 389 million would go to Liberbank shareholders, or 0.128 per share of Liberbank in synergies, added to last close price would give EUR 0.438 per share of Liberbank.
Recommendation is long Liberbank with a target of EUR 0.438 per share, a 41% upside to the last close price.
Risks: the float in Unicaja is currently 28%, so there is a short squeeze risk in a position to capture the spread, specially if Abanca enters the fray.

According to media, a group of shareholders of both Liberbank SA (LBK SM) and Unicaja Banco SA (UNI SM) are urging to again open negotiations to merge both banks and there is reportedly consensus for an exchange ratio of 59 Unicaja/41 Liberbank. The combined bank would have pro-forma assets of c. EUR 98 billion, thus becoming the 6th top domestic player.
Both Abanca and Unicaja need to gain scale and capture the synergies that would come with the acquisition of Liberbank. The buyer will surely be spared from the next round of consolidation in the Spanish banking sector.
Since last negotiations (abruptly finished in May), both banks have strengthened its solvency and have CET1 fully loaded ratios over 13%. Liberbank and Unicaja are succeeding in the cleansing of their balance sheets from NPAs (more than EUR 2 billion in the last year), moreover, an increase in the value of their bond portfolios is also helping. This would mean that the ECB would not require a massive rights issue to strengthen the capital of the merged entity. A EUR 500 million contingent convertibles (CoCos) issue and another EUR 300 million in subordinated debt would be enough.
A further catalyst is that Fundación Unicaja, the main shareholder of Unicaja must reduce its shareholding percentage in Unicaja from c. 50% to below 40% before the end of 2020. A merger with Liberbank would help to achieve this goal.
The operation would be structured as an acquisition of Liberbank by Unicaja, with payment in new Unicaja shares, in my view.
Assuming the PV of cost synergies is 778 million (see calculations under "Synergies") and that they are evenly split between Liberbank and Unicaja, EUR 389 million would go to Liberbank shareholders, or 0.128 per share of Liberbank in synergies, added to last close price would give EUR 0.438 per share of Liberbank.
Recommendation is long Liberbank with a target of EUR 0.438 per share, a 41% upside to the last close price.
Risks: the float in Unicaja is currently 28%, so there is a short squeeze risk in a position to capture the spread, specially if Abanca enters the fray.

Liberbank (LBK SM) - Unicaja (UNI SM) Second Time Around