MPB chief ups stakes for control of Bank of Cyprus

… Stavrakis rebuffs, rules out talks — Shareholders will decide fate later

 

Marfin Popular Bank strongman Andreas Vgenopoulos raised the stakes in the battle for control of Bank of Cyprus by promising plentiful profits and synergies in case of a merger, an offer immediately rejected by the island’s biggest bank, leaving the final outcome to be decided by the latter’s shareholders, probably next year.

Vgenopouoos received overwhelming backing from 973 shareholders of MPB representing 57% of the share capital during the bank’s annual general meeting on Tuesday to discuss plans to merge operations with Bank of Cyprus, but subject to the precondition that “the BOC board receives authorization from its shareholders to discuss merger talks with us.”

The offer was flatly rejected by Bank of Cyprus, with BOC Group Deputy CEO and Cyprus operations CEO Charilaos Stavrakis telling the Financial Mirror that “there is nothing new in the proposal made by Vgenopoulos.”

“It lacks substance and there is no consistency in the strategy,” Stavrakis said.

 

— The proposal

 

Vgenopoulos says Marfin Popular Bank and Bank of Cyprus should merge to create the second largest banking group in the Hellenic world with combined assets of EUR 58 bln (surpassing Eurobank by 1 bln euros), EUR 34 bln in advances, EUR 44 bln in deposits and EUR 1 bln in annual profits, and even more importantly EUR 1.1 bln in excess capital to be used for expansion.

The synergies, he said, would amount to EUR 145 mln in 2007, EUR 278 mln in 2008 and EUR 361 mln in 2009.

If that is not possible, due to competition rules and restrictions, then Vgenopoulos is calling on BOC to join forces abroad but remain competitors in Cyprus. In such a case, the friends-and-foe group would generate EUR 79 mln extra profits for 2007, EUR 163 mln in 2008 and EUR 235 mln extra profits in 2009.

BOC’s Stavrakis told the Financial Mirror that he is not impressed by the numbers, since first of all he does not know the basis on which the assumptions were made, and more importantly, “these are just numbers that may go wrong considering that there is no consistency in future strategy.”

He dismissed the idea that two banks can compete at home and at the same time cooperate in other markets.

“This is the first time that I’m hearing such a reasoning to bring two banks together,” said Stavrakis.

He also pointed to a dangerous situation arising from the fact that while MPB makes 40% of the real profits of BOC, it has the same market capitalization.

 

— Libya to India

 

Pressed to expand on the statement that there is no consistency in MPB’s expansion drive, Stavrakis said, “they (MPB) just announced an expensive acquisition in the Ukraine at four times book value. We have information that an attempt to buy a bank in Libya failed and now we hear they want to buy a bank in Bahrain with a subsidiary in India. I’m sure BOC shareholders will want to know what kind of expansion strategy is being followed here. We, on the other hand, have explained why we are expanding into Romania and Russia and how we plan to expand our already strong base in Greece.”

 

— EGM to decide… after a year

 

Analysts view Vgenopoulos’ statement that the BOC board should secure AGM permission before talking to Marfin, as preparing the ground for a direct plea to Bank of Cyprus shareholders at an extraordinary general meeting to be called in future, considering that he knew well that his offer would again be rejected by BOC.

According to Cyprus law, a shareholder or group of shareholders with a 10% stake may call an EGM and put forward any proposal they wish. Marfin Popular Bank currently has an 8.07% stake in BOC that it purchased in March at EUR 11.24 per share in cash from Piraeus Bank.

The new M&A law however also obliges the suitor (in this case MPB) to offer the same offer in cash that it has made to Piraeus for at least 12 months from the date of the agreement to all other shareholders.

This may explain why Vgenopoulos said at the time that “for a year we shall not make a bid on BOC” because if MPB makes a bid, it would have to be in cash, at least at EUR 11.24 per share and for 100% of the bank.

After 12 months, or in March 2008, Marfin may call an EGM or submit a proposal to the f Bank of Cyprus AGM seeking cooperation.

BOC’s Stavrakis said during the forthcoming AGM of BOC, scheduled for June 6, the bank’s management and board will give a full explanation of why they oppose cooperation with Marfin. He also stated that the majority of shareholders, including individuals with small holdings and international funds with large holdings, are backing the BOC’s autonomous expansion course.

 

— 10% dilution approved

 

Marfin Popular Bank shareholders, meanwhile, approved a board motion to issue up to 80 mln shares through the share options scheme to staff with a strike price of EUR 10 per share, which will be given during the next five years and at the board’s discretion.

In addition to staff, board members and associates are also eligible to participate in the share issue, which would amount to a massive 10% dilution.

As for the proposal to proceed with a share buyback, Vgenopoulos admitted that the implementation of such a scheme is not possible since the Banking Law in Cyprus over-rides the Cyprus Corporate Law and specifically forbids such purchases.

 

— Profit revision

 

Vgenopoulos said the MPB results are beyond budget expectations on the positive side, which is why the bank has decided to proceed with new strategic forecasts for the period until 2009 when the board meets on May 9 when the relevant announcement as well as the announcement of the first quarter results will be made.

Marfin Popular Bank officials also said they are 2-3 weeks ahead of schedule for the full merger of Laiki-Marfin-Egnatia, which is planned for June 30. The merger process, which is set to cost EUR 5 mln has already produced major benefits for the bank, the results of which will be reflected in the first quarter profits.