Current price: €7.21
Offer price: €9.85 (updated offer €7.53)
Expected closing: H2 2020
This is yet another merger that saw the spread explode from a tight 1-2% to 60%+ due to ongoing coronavirus situation. Following repeated assurances from Blackstone (the buyer) that the merger is still on track, the spread has narrowed, however the upside to buyout price still stands at 37%.
On the 25th of February Dutch bank holding company NIBC Holdings has agreed to be acquired by Blackstone. Consideration is €9.85/share in cash including €0.53/share to be paid in mid-April.
The offer is supported by the two largest NIBC shareholders (together own 75%), who have even agreed to sell their stakes privately at prices below the current offer (€8.93/share and €9.65/share including dividends). Regulatory approvals should not be an issue given that NBIC is a medium sized bank. The main risk is that Blackstone might drop the transaction, however so far it has confirmed two times already that the merger is still on (Mar 17 and Mar 24).
The offer is expected to commence in June/July after regulatory clearance is passed, while shareholder meeting should take place in early H2.
The main risk (and the reason for the spread) is Blackstone walking away – as noted above this risk has significantly diminished after two repeated reassurances.
Current merger terms indicate 95% acceptance rate requirement. Given that the 75% of the votes have already been secured and taking into account that merger consideration implies 6% premium to an all-time high price of NIBC, the 95% threshold seems achievable especially in these turbulent times.
At the same time, if the offer ends up short of votes, but receives >85% approval (meaning that only 40% of the minority shareholders need to support it), merger parties would take certain pre-agreed “post-settlement restructuring measures” to transfer full bank ownership to Blackstone. The exact measures are not stated yet, but one given example is (press release):
NIBC could, among other things, sell and transfer all of its assets and liabilities to the Offeror and NIBC subsequently would be dissolved and liquidated.
It appears that this kind of pre-agreed alternative squeeze out measures are common in Dutch takeover practices (read more about it here and here). According to the press release, restructuring would be conditioned on the board, regulatory and shareholder approvals (threshold not clear). The update on the 17th of March stated that companies are making progress on the preparation of the asset sale and liquidation or other type of post-settlement restructuring measures agreement.
Regarding the regulatory matters – a consent from Netherlands Authority Financial Markets (AMF) and EU antitrust regulators are required. The update on the 24th of March noted that companies are preparing the filings and should submit with AMF by the 19th of May.
NIBC is a holding company of NIBC bank – a medium sized commercial bank that focuses on corporate (53% of operating income) and retail (28%) segments. It operates in Netherlands (84%), Germany (13%), UK (1%) and Belgium (2%).
NIBC IPO (prospectus) was done in March’18 – 27% shares were sold at €8.75/share. A year later (March’19) a second offering was done at €8.40/share.
While these P/BV and PE multiples might appear way too low, actually most European banks tend to trade at a relatively (compared to American peers) large discount to book value – majority of them are valued somewhere around 0.4x-0.7x BV (source: Bain & Company). In light of these stats the offer at 0.78xBV seems reasonable.
The merger offer comes at only small premium to IPO and secondary prices, however that as well could be justified by the lack of growth in BV/share and slightly deteriorating profitability. Also these IPO/secondary prices kind of give support for the NIBC valuation and reduce the risk that merger terms will be renegotiated downwards.
Finally, given the fact that two major shareholders have agreed to exit at even lower prices, it is quite hard to argue that the offer is unfair for minority shareholder.
All in all, I do not expect shareholder approval to be a big risk here.
Two largest NBIC shareholders, private investment firm J.C. Flowers & Co (60.6%) and a family run Dutch private equity investment company Reggeborgh (14.7%), have agreed to sell their stakes under separate agreements at €8.93/share and €9.65/share respectively (dividends included). JCF has owned the bank since 2005 and sold 27% in the IPO plus additional 13% in the second offering. Reggeborgh acquired its stake in the IPO and added more in the secondary offering.
The wide gap between considerations of JCF and Reggeborgh+minority shareholders are receiving is quite interesting and shows how eager was JCF to get out of the position. JCF was also given option to reinvest in the bank as minority shareholder but at a higher price (seems quite odd, but again might be common in Dutch M&A):
Certain existing JCF investors may reinvest indirectly in the Offeror at a price of EUR 9.26 per Share (equivalent to the overall blended price per Share to be paid by the Offeror), alongside the Blackstone Funds. This reinvestment would, in aggregate, represent an indirect investment in the ordinary share capital in the Offeror of up to 20%, depending on the amount JCF investors reinvest.
In the 24th of March update it was announced that JCF decided to skip on this ‘lucrative’ reinvestment opportunity.