Doubts about investor confidence in Natixis, the investment bank and asset management group created through the merger of Natexis and IXIS Corporate and Investment Bank, were silenced by the success of the bank’s equity transaction in December.
Natixis raised €4.22 billion in what was technically a secondary placement of shares because Natexis had been a publicly listed company, but was widely seen as an IPO for the newly merged bank. The deal attracted close to €12 billion of demand, including €4.4 billion from retail investors, mainly customers of the Banques Populaires retail bank network for which the new bank is a centralized product factory.
The deal is the largest in France since the €7.5 billion listing of Electricité de France in 2005.
Sanpaolo IMI and DZ Bank, long-time partners of Natexis and Ixis, also took advantage of the capital-raising to take strategic stakes in the bank.
The deal gave Natixis a market capitalization of €24.8 billion, comparable to the investment banking businesses of BNP Paribas and SG.
Although the bank’s valuation had not come with as big a discount relative to its peers that some were expecting, the issuer held back from pricing the deal more aggressively.
“It’s fair to say that we had some flexibility about where to price the deal because it was well oversubscribed and investors showed only limited price sensitivity,” says Stefan Courbon, head of ECM and corporate finance, France, at Merrill Lynch in Paris. Unusually, instead of pushing for the highest possible price, the issuer pressed the bookrunners not to price too aggressively as it wanted to be sure to leave some upside for new investors, especially the retail subscribers, as most of them were the bank’s customers.
At an investor presentation in October, analysts had expressed disappointment with the conservative estimates for the merger’s synergies, which were expected savings of just 5.4%, or €522 million by 2010.
Concern had also been raised about Natixis’s asset management business, the largest in France, with more than €500 billion of assets under management. Investment consultant had warned that the group could face billions in outflows as a result of concerns about staff departures and the loss of Ixis Asset Management’s AAA rating.
But it turned out that the growth potential of the bank was its main attraction to investors.
“It’s an interesting opportunity because it is the fourth-largest bank in France but still has a lot further than the top three to go in terms of restructuring and growth,” says Courbon. “But unlike in other French bank mergers the main driver of Natixis will not be cost-cutting. Natexis and Ixis had complementary franchises and Natixis is really about bringing the two together to sell more products to more clients.”
To help the plan work, Banques Populaires’ retail executives have had their compensation linked to the performance of Natixis.