Czech investment group PPF's planned merger between Moneta Money Bank, the sixth largest Czech bank by assets, and Air Bank, ranked eighth, is is deep trouble after proxy voting firms came out against the deal and amid rumours that a large part of Moneta's shares are now in the hands of hedge funds and other speculative investors who are holding out for a higher buy-out price.
Proxy voting firms Glass Lewis and Institutional Shareholder Services have recommended Moneta Money Bank shareholders vote against the acquisition of PPF´s Air Bank, Czech and Slovak Home Credit and Benxy. The share-based acquisition would lead to the de facto reverse takeover of Moneta by PPF, because of PPF's existing 30 per cent stake in Moneta.
The shareholders are to vote on the deal on June 22. To succeed, half of the shareholders present have to vote in favour and 75% have to approve the issue of new shares to PPF.
The merger will now be opposed by the California State Teachers' Retirement System which owns 0.25% of the shares, following Glass Lewis' recommendation that the price is too high compared to its competitors in the sector.
“PPF firmly believes in the rationale to combine at contracted terms its banking and consumer finance assets with Moneta to form the Czech Republic’s retail banking champion and create a value for all Moneta shareholders,” Spokesman Leos Roucek told bne IntelliNews in an emailed statement.
PPF has continued to pursue the deal despite the death of its founder Petr Kellner in March.
In May, Moneta Money Bank management signed a framework agreement on the acquisition. Moneta should acquire 100% of the shares of Air Bank Group for CZK25.9bn (€1bn) through the issue of new shares, giving PPF Group an estimated 55.38% of Moneta, including its existing shareholding.
PPF argues that the combination of the internet bank Air Bank and Moneta will create a strong new banking group, ranked third in terms of customers (with 2.5 million) and second in consumer finance. It says it aims to double Moneta's value and follow a dividend payout ratio of 80% of profits.
However, critics, such as the hedge fund Petrus Advisers, say the deal overvalues Air Bank, with Moneta is buying at 2.4 times book value (higher than the 2.2x book in PPF's previous offer in 2018), and undervalues Moneta, which, at CZK41bn, is valued at 1.5 times book under the deal. PPF argues the relative valuations derive from the internet bank's greater profitability and growth potential.
After the merger, PPF will also be obliged to launch a mandatory tender offer to acquire up to 100% of Moneta shares at a minimum price of CZK80 per share, unless the central bank mandates a different price. This price was a 19% premium over the the share price when PPF launched the offer in March and a 34% premium to the average share price over the six months prior to the announcement. Petrus Advisers argues that a fair price would be CZK93 a share.
Petrus Advisers says it owns more than 5% of Moneta Money Bank. It accuses PPF of pursuing a takeover strategy that deliberately avoids normal restrictions on voting its own shares during a takeover and the need for an independent valuation. PPF originally tried to buy Moneta and merge it with Air Bank in 2018. In this attempt, it launched a public offer, which for CZK11.3bn gave it a 30% shareholding that it is now using to push through the merger.
In a presentation last month, as well as the pricing, Petrus voiced concerns over Air Bank's reliance on lending to the rest of the PPF group (which it says is around 50%), over what it argues is a lack of fit with Moneta, and the "unrealistic assumptions" of CZK1.9bn synergies by 2026. It says the merger will expose Moneta to PPF's "high-risk declining" business, that Air Bank has very low risk provisions, and that the deal will be very complex and cost much more than the CZK2.2bn forecast. "The transaction involves four different stagnating companies... making a successful integration very complex and unlikely," Petrus said.