(Updates with closing share price.)
Sept. 15 (Bloomberg) -- Erste Group Bank AG, eastern Europe’s second-biggest lender, agreed with four Romanian investment funds to buy their 24.1 percent stake in its Banca Comerciala Romana SA unit for 435 million euros ($599 million).
Four out of the five minority shareholders, known as SIFs, will receive a total 453.9 million lei ($145 million) for their shares and a stake of as much as 1 percent each in Erste through a share swap, according to a statement from the Vienna-based lender yesterday after markets closed. The accord is pending approval from the funds’ shareholders.
“It has always been our strategy to hold the highest possible stake in our subsidiaries and we are glad to have now this possibility also in Romania,” Erste’s Chief Financial Officer Manfred Wimmer said in the statement.
The agreement, which when completed raises Erste’s stake in BCR to 93.5 percent, will give the lender greater access to its Romanian unit’s earnings and capital by reducing the requirement of deductions for minority shareholders, analysts including Goldman Sachs Group Inc.’s Heiner Luz and UBS AG’s Daniele Brupbacher have said. It will also streamline decision-making because the funds had veto rights for some issues, according to BCR’s statutes.
Erste shares rose 3.1 percent to 20.58 euros at the 5:30 p.m. close in Vienna, the biggest increase since Aug. 12. The lender’s shares have declined 41 percent this year.
The Bucharest bourse’s BET-FI index, which tracks the five investment funds, closed 3.2 percent higher at 18,662.72 points in the Romanian capital.
The agreement “enhances Erste’s long-term growth profile by increasing its emerging-market exposure,” Goldman’s Luz wrote in a note to customers today. “We believe the deal was widely expected and the valuation in line with book value takes out some tail risks.”
Erste agreed to buy its initial 61.9 percent stake in BCR in 2005 for 3.75 billion euros, or 5.8 times book value. That made the acquisition the biggest bank purchase in eastern Europe announced that year, and the one with the highest price in relation to book value, according to data compiled by Bloomberg.
Yesterday’s accord values BCR at a multiple of 1.26 times book based on Erste’s one-month share price average, it said in the statement, adding that this was “in line with market valuations” for banks in Romania and the region.
When it agreed to buy BCR in 2005, Erste pledged to list BCR’s shares within three years to give the SIFs an exit option. It agreed with the funds to delay that target date to October because of adverse market conditions. Earlier this year, Erste Chief Executive Officer Andreas Treichl said he would now rather add to his 69.4 percent stake than list.
The SIFs will waive their rights to request a listing of Romania’s biggest bank by assets and to special dividends, according to the agreement. The four SIFs are SIF Banat-Crisana SA, SIF Transilvania SA, SIF Muntenia SA and SIF Oltenia SA. The fifth fund, SIF Moldova SA, also has the possibility to enter into the same agreement, Erste said.
The value of the transaction could rise to 543 million euros under an agreement with all the five funds, Erste said today in an e-mailed response to Bloomberg questions.
SIF Moldova may also consider selling its stake in BCR, pending a shareholders’ approval on Sept. 23 or Sept. 24, Chief Executive Officer Costel Ceocea said in a phone interview today.
SIF Banat-Crisana’s executive board said in a statement to the Bucharest bourse today that it deemed the transaction favorable for the fund, while SIF Muntenia said the transaction is pending shareholders’ approval at a meeting on Sept. 21 or Sept. 22.
The SIFs originate from Romania’s five Private Property Funds, established when parliament adopted the country’s first privatization law in 1990. The law split most of the state’s property among the State Ownership Fund, which had 70 percent, and Romanian citizens, who received the remaining 30 percent.
Erste bought its initial stake in BCR from the Romanian government, the European Bank for Reconstruction and Development and the World Bank, while the SIFs and BCR staff retained their shares. The Vienna-based lender bought out about 7 percent held by the employees in 2006 and started a secondary listing of Erste’s stock at the Bucharest exchange in 2008.
The cash portion of the deal will be paid from retained earnings, Erste said, adding that the deal will have a maximum negative impact on the bank’s capital ratios of 0.1 percent after it issues 16 million new shares from existing capital for the stock swap. Erste’s core Tier 1 ratio, a measure of financial strength, stood at 8 percent at the end of June.
--With assistance from Andra Timu in Bucharest. Editors: Douglas Lytle, Peter Branton
To contact the reporters on this story: Irina Savu in Bucharest at email@example.com; Boris Groendahl in Vienna at firstname.lastname@example.org
To contact the editors responsible for this story: Angela Cullen at email@example.com; James M. Gomez at firstname.lastname@example.org