Iceland's Kaupthing Bank agreed on Wednesday to buy NIBC for about 3 billion euros ($4.1 billion) in cash and shares, but left out the Dutch merchant bank's loss-making US subprime portfolio.
Kaupthing Chief Executive Hreidar Mar Sigurdsson said NIBC would help diversify the Icelandic bank's revenues, bring economies of scale, and give it a strong position in the Benelux region and a foothold in Germany. "This is an excellent strategic fit," Sigurdsson said on a conference call with analysts.
The purchase of NIBC follows a flurry of buyouts in the Netherlands. Dutch bank ABN Amro is the subject of competing bids, and food group Numico and chemicals distributor Univar have agreed to be acquired. Kaupthing, Iceland's biggest banking group, said it would not take on NIBC's exposure to the US subprime market, which will remain with NIBC's owners, led by private equity firm J.C. Flowers.
Sigurdsson said the two banks had a complementary focus on small and medium-sized businesses and the deal would diversify Kaupthing's balance sheet, geographical footprint and revenues.
It will also give Kaupthing a base to build on in Germany, which "could be an interesting deposit market for us," he added. Kaupthing, advised by Lehman Brothers, is paying 12.7 times NIBC's net earnings for the past 12 months. European banks are, on average, trading at around 10.5 times estimated 2007 earnings, according to Moody's.
NIBC announced a 137 million euro loss on its US asset-backed securities portfolio last week. NIBC said the portfolio was worth some 390 million euros in total. The deal needs to be approved by regulators and is expected to close in the fourth quarter or early next year. Banks in Europe have been looking to bulk up recently to capture economies of scale and broaden product portfolios.
Icelandic banks have been especially active in recent years, looking to broaden revenue and deposit bases and reduce exposure to the volatile economy of the remote North Atlantic island.
After digesting recent acquisitions including corporate bank FIH in Denmark and broker and asset manager Singer & Friedlander in Britain, CEO Sigurdsson said last month the bank was ready for more, pointing to the Benelux countries, the Baltic states and northern Germany as natural areas of expansion. NIBC had been considering an initial public offering but shelved the plans earlier this month.
Kaupthing said it would issue new shares worth 1.36 billion euros to the sellers. The cash part of the deal, 1.625 billion euros, will be financed by a rights issue of 40 million shares, issuance of Tier 1 hybrid instruments and cash on hand. NIBC also reported its first-half results on Wednesday, reporting a 98 percent decline in net profits to 3 million euros.
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