CA has the advantage
Credit Agricole’s unexpected move to submit a cash offer for 100 percent of Emporiki Bank last week has made life easier for Greek Economy and Finance Minister Giorgos Alogoskoufis, who wants to see Emporiki privatized, but more difficult for other interested parties who are eying Greece’s fourth largest bank by size. The prevailing view among bankers, analysts and others wants another interested party to bid for Emporiki but this remains to be seen since the potential sums required are quite large for Greek banks and not insignificant for foreign banks given the relative valuations. The French bank surprised everybody in the market by launching a cash offer for 100 percent of Emporiki ordinary shares at 23.5 euro per share, valuing Emporiki at about 3.1 billion euros. The minimum acceptance level for the French was set at 40 percent, including its current stake and potential market purchases during the offer period. According to Jean-Frederic de Leusse, head of International Development and member of the Executive Committee, and Gilles de Margerie, chief financial officer and chief strategist of Credit Agricole, confidence in the Greek economy, the ongoing superior growth of the Greek banking sector, the long-standing partnership with Emporiki, the resolution of the pension issue and the attainment of certain investment criteria played an important role in the French Bank’s decision to submit an offer. The need for management control to successfully implement Credit Agricole’s business plan for Emporiki and the «perfect fit» with Credit Agricole’s international development strategy were the other two reasons. It is not a secret that the large Greek banks would have liked Emporiki to be independent, staying on the same course. It is easy to understand why. This situation would have made it easier for them to gain market share without having to worry about the presence of a large European bank with access to cheaper funding and other resources in the Greek market. This would have accelerated the expected compression of the fat interest spreads enjoyed by banks operating in Greece in major loan categories, such as mortgages, hitting hard their profitability and their stocks. A Greek bidder? So, the second best option from this point of view would have been to have Emporiki end up under the wings of a large Greek bank. Which Greek bank though? Whichever of the large three banks, namely Alpha Bank, EFG Eurobank and Piraeus Bank, ended up acquiring control of Emporiki would have suddenly become the first or second largest bank in the country. But this is something the other two banks would not have left unanswered in a small market, meaning such a development would have likely caused a chain reaction, resulting in more intra-country bank marriages. Whether this would have been good or bad for their average Greek customer is uncertain since the purpose of the marriage would have been to attain economies of scale on one hand and greater pricing power on the other, translating into relatively higher interest spreads for a longer period of time. This perhaps would have made their shareholders happy but not so much their customers. But the prospects of having a Greek bank beating Credit Agricole’s bid on a comparative basis, that is in cash, are limited without outside help. By making a cash offer for 100 percent of Emporiki ordinary shares, Credit Agricole apparently knew a large Greek bank would have to proceed with a sizable share capital increase in a relatively short period of time to finance the deal. Given the high volatility in the markets lately and National Bank’s rights issue of 3 billion euros, this task seems herculean at this point for Greek banks eying Emporiki. So, the other alternative would have been for a Greek bank to form a bid, consisting of cash and own shares. However, this is not obviously seen by the Greek state, which directly or indirectly controls more than 25 percent of Emporiki, as an offer which can be directly compare to Credit Agricole’s. In addition, it will have to get the approval of the Capital Markets Commission and the central bank. All-in-all, the large Greek banks will have to find another way or «vehicle» to beat the cash offer of Credit Agricole for Emporiki on equal terms and this is not easy. Press reports over the weekend wanted a Greek bank or two to look into different schemes aiming at a smaller equity stake of Emporiki but this amounts to unequal treatment of all shareholders and it is unlikely to be accepted by the State, which has made the fair treatment of all shareholders a condition. If it is very difficult for the large Greek banks to make a cash bid for 100 percent of Emporiki, it is not so with foreign banks. The rationale behind such a move would have been to expand their footprint in the wider geographical region and obtain a large branch network in the high growing Greek market. Even so though, the price tag may be too big if one takes into account Emporiki’s valuation compared to its peers and the need for extra provisioning for bad loans, estimated at 300 million euro by Credit Agricole. Given the strict deadline for the completion of Emporiki’s privatization, put forward by Finance Minister George Alogoskoufis for end-July, a new bid for Emporiki, if there is one, will have to take place within the next 10 days, according to investment bankers. Of course, the jury is still out but at this point the French seem to have the upper hand in Emporiki and it looks as if it will take a quite brave bid by another interested party to loosen their grip on Emporiki. But times are not ripe for brave warriors. The chances are, if there is another bid for Emporiki, it will come from abroad and will not be so high that Credit Agricole will not be able to top it.