Corporate News Blog - Banco Santander Acquired Spain's Banco Popular for Just €1
LONDON, UK / ACCESSWIRE / June 9, 2017 / Pro-Trader Daily takes a look at the latest corporate events and news making the headlines for Banco Santander, S.A. (NYSE: SAN). The Company announced on June 07, 2017, that it had acquired Banco Popular. The acquisition was the result of Santander making a successful bid at an auction that was conducted by the Single Resolution Board and FROB (Fondo de reestructuración ordenada bancaria - a banking bailout and reconstruction program initiated by the Spanish government in June 2009). Santander paid just €1 as notional consideration. The most important aspect of this acquisition is that the deal would not need the support of Spain's taxpayers. For immediate access to our complimentary reports, including today's coverage, register for free now at: http://protraderdaily.com/register/.
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Commenting on the acquisition of Banco Popular, Ana Botín, Group Executive Chairman of Banco Santander said:
"The combination of Santander and Popular strengthens the Group's geographic diversification at a time of improving economic conditions in both Spain and Portugal, and will allow us to continue to deliver for customers and shareholders on all our commitments."
Details of the acquisition
As per terms of the acquisition, Santander will raise €7 billion via a rights issue to fund the acquisition. The rights issue will be fully underwritten. The funds raised from the rights issue will be used to cover the capital and other provisions which will help in strengthening Popular's balance sheet. The current shareholders of the company will be given preference to subscribe for the rights issue.
With a view to align Popular's provisions and capital with the rest of the Group, Santander will make additional provisions for non-performing assets of €7.9 billion which includes €7.2 billion for real estate. This additional provision will increase the coverage for real estate assets and real estate non-performing loans from 45% to 69%. This coverage is significantly higher than the peer average of around 52%. Post the completion of the acquisition, the Group plans to reduce Popular's real estate exposure significantly, which is similar to what it did at Banco Santander in the last few years.
The funding for the acquisition and provisions made for Popular's real estate exposure will have neutral impact on the Group's Common Equity Tier 1 (CET1) capital ratio. CET1 is a measure of bank solvency that gauges a bank's capital strength. CET1 was introduced in 2014 as a precautionary measure to protect the economy from a financial crisis. Santander is committed to increase its CET1 capital ratio to above 11% in 2018.
Santander is also confident of continuing to meet all its commercial and financial commitments for 2017-18, including growth in earnings per share, dividend per share, TNAV per share, and capital.
Once the transaction is completed, the merged entity will operate under the Santander brand and will be managed by Santander Spain's management team under the leadership of Rami Aboukhair who will be the CEO.
Benefits of the acquisition
With the acquisition of Popular, Santander becomes one of the largest bank in Spain in terms of lending and deposits. Santander will add 17 million customers in Spain and 4 million customers in Portugal as a result of this deal. As a result, Santander's credit market share will increase to 20%.
SME lending is a key driver for economic growth in Spain and the merger will result in the combined entity having a 25% market share in this sector. This will also be in-line with the Group's strategic priority of growing the SME business in Spain.
The merger will allow Santander to diversify its business verticals and concentrate on increasing the Bank's exposure to more profitable business segments that are at a positive stage in the economic cycle.
In Portugal, Popular will merge with Santander Totta. This will help Santander Totta to become a leading privately-owned bank in the country and will help accelerate growth and strengthen its market shares in both lending and deposits.
The acquisition is expected to result in a 13%-14% ROI (return on investment) in FY20 and increase its EPS (earnings per share) in 2019. The merger will also help in increasing profitability and increased revenue growth.
The acquisition is expected to result in annual cost synergies of over $500 million from FY20, which will lead to efficiency ratios that are among the best in both Spain and Portugal.
The acquisition meets Santander's strategic and financial investment criteria, with future enhancements expected in all key financial performance metrics for the Group.
The acquisition is in-line with the Bank's strategy of making key acquisitions in core markets where they add value to customers and shareholders.
Background
On June 06, 2017, the European Central Bank (ECB) determined that Banco Popular Español S.A. was failing or likely to fail in accordance with Article 18 (1) of the Single Resolution Mechanism Regulation. ECB's decision was based on the significant deterioration of Popular's liquidity situation, which could have resulted in Popular unable to pay its debts or other liabilities on their due dates, in the near future. ECB informed the Single Resolution Board (SRB) about its decision after which a resolution was adopted to force the sale of Popular to Santander. This is the first major decision by the SRB.
Last Close Stock Review
On Thursday, June 08, 2017, the stock closed the trading session at $6.79, rising 4.14% from its previous closing price of $6.52. A total volume of 16.93 million shares have exchanged hands, which was higher than the 3-month average volume of 8.14 million shares. Banco Santander's stock price skyrocketed 18.29% in the last three months, 37.73% in the past six months, and 48.35% in the previous twelve months. Moreover, the stock soared 31.08% since the start of the year. The stock is trading at a PE ratio of 13.53 and has a dividend yield of 3.53%. At Thursday's closing price, the stock's net capitalization stands at $98.39 billion.
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