Norway’s Den norske Bank is making a long-awaited bid for the country’s local savings bank. DnB dubs this its dream deal, but there is no guarantee that it will go through.
On March 13 DnB and Union Bank of Norway, or Gjensidige NOR, announced that they were in talks about a possible merger. Five days later they announced they would put an offer of 6.2 DnB shares per UBN share plus NKr23 ($3.13) per UBN share to its shareholders.
Last May DnB proposed a deal with Norwegian insurance company Storebrand. Many of the bank’s shareholders and analysts felt it should hold out until UBN was demutualized. Amit Mehta, banks analyst at Morgan Stanley, says: “I think why the Storebrand deal broke up was pretty much because DnB shareholders put their foot down, with the exception of the government, and said ‘look this is not the right deal for you. Be patient. It doesn’t make sense’.”
Now a merger between UBN and DnB would fulfil the Norwegian government’s long-held wish to create a national banking champion. The new entity would be the fifth-largest Nordic bank in terms of total owned and managed assets (see table). The bank would also be the leader in banking, life insurance, fund management and capital markets in Norway. However, a successful merger is not a certainty despite strong government backing and obvious synergies.
UBN’s foreign investors have shown a lack of support for the offer from DnB. Analysts also say the offer is too low. “For Norwegian banks, history has shown that take-outs can be in excess of 1.6 [times book value], looking at Nordea’s take-out of Christiania Bank [in 2000],” says Mehta. He adds: “This [current offer for UBN] is close to book [value]. You would assume something above maybe 1.3/1.4 could be justified.” The proposed deal is good for DnB but many of the savings bank’s shareholders are frustrated.
Stakeholders in UBN have said they would welcome offers from other bidders to drive up the deal price. DnB has admitted to rebutting offers from Denmark’s Danske Bank and Sweden’s Handelsbanken to discuss merger possibilities. UBN’s management explains that this is because its two main shareholders, Gjensidige NOR Savings Bank Foundation (24%) and insurance company Gjensidige NOR Forsikring (13%), are not interested in a cross-border merger.
50-50 chance of success This is where the situation gets sticky. Foreign investors own around 37% of UBN and an estimated 25% of those are opposed to the deal. They need to drum up an additional 8% of support to enable them to block the deal under Norwegian law. Mehta feels there is a 50% chance of this happening. “But there is this rebuttal statement from the UBN shareholders saying that the view some are taking is short-termist, in terms of actual value creation to the shareholder today, versus what they’ll get as part of the combined group,” he adds.
It seems likely that foreign investors are chasing short-term gains that will enable them to get out of the Norwegian asset at an attractive price. “There is a general view that international investors are becoming more anti Norwegian assets. The other issue is maybe they want to block out the initial terms to get the most money on the table so they can exit Norwegian assets full stop,” says Mehta.
If the deal between UBN and DnB is scuppered it will only take an opposing 10% of shareholders in the savings bank to block a potential deal with a foreign bidder. This is bad news for banks such as Swedbank or Danske Bank that have shown interest. As an analyst at one investment bank says: “You could end up with a stalemate…”
Shareholders will vote at each bank’s extraordinary general meeting both of which are scheduled for around mid-June. Management hopes the deal can be completed by the end of the year.
