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National Commercial Bank, Saudi Arabia’s largest lender by assets, agreed to buy rival Samba Financial Group for $15 billion in the biggest banking takeover this year.

NCB will pay 28.45 riyals ($7.58) for each Samba share, according to a statement on Sunday, valuing it at about 55.7 billion riyals. The kingdom’s sovereign wealth fund, the biggest single shareholder in the two banks, will have the largest stake in the combined entity with 37.2%.

The new bank will have total assets of more than $220 billion, creating the Gulf region’s third-largest lender. Its $46 billion market capitalization nearly matches that of Qatar National Bank QPSC, which is still the Middle East’s biggest lender with about $268 billion of assets.

Banks in the oil-rich Gulf have been combining as regional economies suffer the twin shocks of lower energy revenues and the global coronavirus pandemic. The Saudi consolidation also coincides with a long-awaited wave of banking mergers in Europe, where lenders are exploring tie-ups or have begun taking over smaller rivals.



chart: New Pecking Order


© Bloomberg
New Pecking Order

“Under NCB’s management, better value should be realized from Samba’s over-capitalized assets,” CI Capital analysts including Sara Boutros said in a note to clients. “The deal also provides NCB with a larger capacity to grow more aggressively, particularly in the corporate space, as the market stabilizes and as lending opportunities emerge.”

Read more: Moody’s Sees Virus and Oil Shocks Speeding Up Gulf Bank Mergers

Merging two major domestic banks is a key component of Crown Prince Mohammed bin Salman’s “Vision 2030” initiative to diversify the Saudi economy away from oil by creating local champions in industries such as finance. Besides the Public Investment Fund, the largest shareholders in the combined NCB-Samba entity will include the Saudi Public Pension Agency, which will own 7.4%, and the General Organisation for Social Insurance with a 5.8% stake.

Vision 2030

“Saudi Arabia is undergoing a historic transformation with Vision 2030,” said NCB’s current chairman, Saeed Al-Ghamdi. “Such a transformation requires a robust financial services sector, especially highly capitalized, resilient banks that can fund economic development, as well as support Saudi Arabia’s trade and capital flows with the region and the rest of the world.”

NCB will offer 0.739 new shares for each Samba share, at the lower end of the 0.736-0.787 ratio the banks set when they signed an initial framework agreement in June.

The offer is a 3.5% premium to Samba’s Oct. 8 closing price of 27.50 riyals and about 24% higher than the level the shares traded at before the talks were made public. Bloomberg News first reported the merger discussions.

More details:

NCB’s existing shareholders will own 67.4% and Samba’s shareholders will own 32.6% of the combined entityThe transaction is expected to unlock about 800 million riyals annually fully phased in cost synergies after integrationAmmar AlKhudairy, current chairman of Samba, to become chairman of merged bank; Saeed Al Ghamdi, the current chairman of NCB, to become managing director and group CEONCB advised by JPMorgan Saudi Arabia; Samba advised by Morgan Stanley Saudi ArabiaThe deal is expected to close in the first half of 2021Consultant appointed to review the branding of new entity

The deal comes almost a year after NCB abandoned plans to merge with Riyad Bank, a deal that would have created a bank with about $200 billion of assets. HSBC Holdings Plc’s local affiliate Saudi British Bank completed its acquisition of Alawwal Bank, which was part-owned by Royal Bank of Scotland Group Plc, in June last year.

Saudi Arabia has almost 30 local and international lenders serving a population of more than 30 million people.

The combined bank’s targeted cost synergy of 9% is below regional peers, leaving room for an upside post integration. A better funding structure and an opportunity in cross-selling products should boost revenue by at least 2%, according to Bloomberg Intelligence analyst Edmond Christou.

The new leadership will assume their new roles after the conclusion of the merger in the first half of 2021, subject to approval of the nominations by the new board of directors.

(Updates with analyst comment in fourth paragraph)

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