The combined bank will have assets of around $77 billion, the two banks said on Wednesday, according to Reuters.
The agreement, which involves SABB (which is 40 percent owned by HSBC Holdings) acquiring the smaller Alawwal (which is 40 per cent owned by Royal bank of Scotland) for SAR18.6 billion riyals is the first major banking tie-up in the kingdom for around 20 years and comes as Saudi Arabia embarks upon a plan to transform the economy and cut its dependence on oil revenues. The banks first started discussing the merger in April last year.
Reuters reported that the boards of the two banks have reached a non-binding agreement on the share exchange ratio, subject to several conditions, the two banks said in separate joint statements to the Saudi Arabian bourse.
The regulatory environment for bank acquisitions in Saudi Arabia is relatively untested, which stalled progress on the merger. Shareholders were also assessing any potential impact from the kingdom’s anti-corruption drive, two sources told Reuters in January.
The Royal bank of Scotalnd (RBS), which acquired its stake in Alawwal via its 2007 purchase of ABN Amro, has been looking to sell it for a number of years as it retreats from international operations and tries to bolster its capital base. Through the consortium, RBS owns about 15 per cent of Alawwal and RBS’s stake in the new entity will be five per cent, reducing Alawwal-related risk-weighted assets on RBS’s balance sheet from GBP 5.9 billion to just under GBP1 billion, Reuters said.
The banks said that the steps still to be agreed include completion of confirmatory due diligence, finalization of the merger deal and agreement on a number of other commercial issues, and based on the preliminary agreement, Alawwal shareholders would receive 0.485 SABB shares for each Alawwal share.
Based on the exchange ratio and the closing price of SAR33.5 riyals per SABB share on Monday, the last trading day prior to the date of this announcement, the merger would value each Alawwal share at SAR16.3 and Alawwal’s existing issued ordinary share capital at approximately SAR18.6 billion, representing a premium of 28.5 percent to the Alawwal share price, the banks said in a statement.
Both banks have said that layoffs as a result of the merger are unlikely.
“[The] merger would be a win-win situation. It would create the third-largest bank in the kingdom in terms of assets and net profit, which could reach SAR5.9 billion annually,” said Mazen al-Sudairi, head of research at Al Rajhi Capital, Reuters reported.
Source: CPI Financial
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