Poland finally accepts Rabobank's huge offer for BGZ

By bne IntelliNews July 31, 2012

Tim Gosling in Prague -

After months of delays, despite the huge premium on offer, the Polish government has finally agreed to sell its remaining 25.5% stake in agricultural lender Bank BGZ to Dutch co-operative Rabobank, Poland's treasury ministry said in a statement on July 30. The time lag only deepens suspicion that a large part of the deal was done below the waterline.

Rabobank currently owns around 60% of BGZ, but surprised in April with a PLN1.25bn (€287m) offer for the remainder of the bank. The tender price of PLN72.5 per share offered a 54% premium to the share price on the Warsaw Stock Exchange. The offer is open to the Polish state, which still holds 25.5% after failing to sell its remaining holding to Rabobank a year ago, and holders of the 15% free float. Warsaw listed a 12% stake in response to its failure to offload to the Dutch bank.

Analysts suggested to bne at the time that the move "must involve some kind of deal with the treasury ministry." Nothing that has happened since does anything to lessen that suspicion, with constant delays (presumably as backroom bartering continues) met with long term extensions of the hefty offer by the Dutch suitor.

BGZ's share price understandably shot up on the back of the bid, but the original deadline of May 31 was extended through June, apparently as financial regulator KNF delayed offering approval of a deal. The offer then appeared to become open ended, but the treasury ministry's statement this week appears to suggest that the details of the background agreement - whatever that may be - have finally been thrashed out.

Rabobank's offer has apparently survived the deepening of the Eurozone crisis through the second quarter and downgrades from Moody's for both the Dutch bank itself and BGZ in mid-June. In fact, the ratings agency points out that it is only the Rabobank offer - and presumed parental support - that keeps BGZ from a further cut. "[T]he current three notches of uplift in BGZ's long-term rating of Baa2 - which remains one of the highest of Western European bank subsidiaries in the region - is driven solely by parental support assumptions," Moody's analysts wrote on June 19.

Therefore, it's hard to imagine another scenario but an agreement between Rabobank and Warsaw given the excessive price of the offer. As analysts at Raifeissen pointed out in April, the offer is a no brainer for investors, which values the small, specialist BGZ far higher than the February deal Spanish giant Santander struck to buy Kredyt Bank, which is to merge with Bank Zachodni WBK to create Poland's third largest bank. "The [price to book] multiple of the expected transaction amounts to 1.1x for 5% [return on equity]," the analysts wrote, "which is much more favorable than 1.4x multiple for Kredyt Bank, which earns ca. 8% ROE. We recommend to participate in the offer."

The persistence of the high priced offer is even more surprising given that Rabobank has become mired in the struggle amongst European banks to offload assets in a bid to raise capital ratios. Back in May, reports suggested the Dutch outfit is now looking to offload non-core assets.

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