Moody’s stays neutral on Marfin bid proposal

Moody’s Investors Service commented on the Piraeus Bank SA (PB) bid to acquire Marfin Popular Bank Public Company Ltd (MPB), on MPB’s bid to acquire Bank of Cyprus Public Company Ltd (BOC) and MPB’s intention to launch a bid to acquire PB, but has taken no rating action at the present time as it believes it is premature to assess the outcomes of these offers.

The rating agency noted that PB has launched a bid to acquire a 100% stake in MPB, with a minimum acceptance level of 40%, MPB has bid to acquire a 100% stake in BOC, with a minimum acceptance level of 35%, and MPB is intending to launch a bid to acquire 100% of PB.

According to Moody’s, should PB’s bid (a non-cash offer involving one PB share in exchange for 5.7 MPB shares) be successful, PB could gain a strong presence in the Cypriot banking system and further enhance its position in the Greek banking system.

However, such acquisition could pose significant integration challenges given that MPB itself is currently involved in merging the operations of its three Greek subsidiaries — Laiki Bank Hellas, Egnatia Bank and Marfin Bank.

Regarding MPB’s bid to acquire BOC (a non-cash offer involving 1.241 MPB shares in exchange for one BOC share), should this be successful, the merged group would enjoy an unrivalled position in Cyprus, bringing together the two largest commercial banks in the island and controlling almost half of the financial system’s assets.

Furthermore, the group could have an enhanced presence in Greece, combining the growing franchise of BOC and MPB’s Greek subsidiaries. However, Moody’s cautioned that such a transaction could entail major operational and integration challenges, not only because MPB is currently merging its subsidiaries in Greece, but also because of the considerable overlap between the Cypriot operations of BOC and MPB, which may require rationalisation for cost synergies to be effectively delivered.

Furthermore, the combined group will command almost half of the assets in Cypriot financial system, and possibly majority market shares in certain business lines, which could prompt a review by the relevant competition authorities.

Finally, relating to MPB’s bid to acquire BOC and its intention to launch a bid for PB, the Cypriot Capital Markets Commission has to decide whether or not such bids are a defensive tactic in response to PB’s bid for MPB in order to accept them as valid offers. Under Cypriot legislation, a company subject to a takeover bid is not allowed to engage in any activity, such as a counter-bid, with the intention to obstruct the bid. Given that PB’s offer to acquire MPB has already been accepted by the CMC, the commission is expected to decide on whether to consider MPB’s bids for PB and for BOC in the next couple of days.

Moody’s added that all transactions are subject to regulatory and shareholders’ approval. With revised offers currently not ruled out, Moody’s will monitor the progress of the bidding process and once there are clear indications about the possible final outcome, it will assess the likely impact of this on the ratings of the involved institutions.

Piraeus Bank SA is currently rated Baa1/Prime-2/C-, with stable outlook; Bank of Cyprus is currently rated Baa1/Prime-2/D+, with positive outlook; and Marfin Popular Bank is currently rated Baa1/Prime-2/D+, with stable outlook.

Headquartered in Athens, Greece, Piraeus Bank SA reported total assets of EUR 28.7 bln at September 2006. Headquartered in Nicosia, Cyprus, Bank of Cyprus had total assets of EUR 24.3 bln and Marfin Popular Bank is estimated to have total assets of EUR 20.8 bln.

Mardig Haladjian, General Manager, Financial Institutions Group Moody’s Investors Service Cyprus Limited

Constantinos Pittalis, Vice President – Senior Analyst, Financial Institutions Group, Moody’s Investors Service Cyprus Limited