More an acquisition of EPCIB by BDO than a true merger, the deal entails BDO offering 1.8 new shares for each EPCIB share, valuing the combined entity at almost $2 billion. BDO management will run the enlarged bank.
BDO looks like the real winner of the two. The deal is transformational for the bank, pushing it from sixth largest to a top three bank with combined assets of more than $12 billion and an increased branch network of almost 700. And with an exit price of around 1.8 times book, BDO has not overpaid. Management admits that the deal will immediately dilute earnings but it is expected to be “break even in 2007 and substantially accretive by 2008”, according to bank CEO Nestor Tan.
The merger might also bring an unforeseen fillip for BDO shares. Long a favourite with international institutions, the shares reached a 40% foreign ownership level some time ago. The new share issue will increase the equity base significantly, reducing foreign ownership to below 25%, claims management. Expect to see foreign investors add to their holdings in the stock over the next year.
Expect also more bank consolidation. The country’s most acquisitive bank, Bank of the Philippine Islands, is expected to hit the acquisition trail again soon.