Alpha Bank to Acquire Eurobank to Create Largest Greek Bank

Alpha Bank SA, the third largest bank in Greece, has announced plans to acquire EFG Eurobank Ergasias SA, merging operations to become the nation’s largest lender. Alpha will offer Eurobank shareholders 0.714 Alpha shares for each Eurobank share, giving Alpha shareholders 57.5% of the new company and Eurobank shareholders a 42.5% stake.

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The new bank will implement a 3.9 billion-euro plan to strengthen its finances, which will include a 1.25 billion-euro rights offer, a 500 million-euro convertible note, which will be taken up by Qatari-backed Paramount Services Holding Ltd., and another 2.1 billion euros of internal measures, helping the lender reach a core Tier 1 capital ratio of 14%. The new bank’s assets will total 146 billion euros and 1,300 branches in eight countries.

While acquisitions tend to positively impact the acquired and negatively impact the acquirer, such is not the case when the acquisition has the potential to add a certain level of security to the financial sector as a whole in that country. News of the acquisition has Alpha Bank shares up 30% and Eurobank shares up 29%, while also boosting the banks’ competitors, including Piraeus Bank SA, which climbed 29% Monday as the ASE General Index set out to make its biggest one-day climb in over 20 years.

“A merger between any of the major Greek banks and a concurrent capital injection would be welcomed by the market, regulators and policy makers,” said UBS AG’s (NYSE:UBS) senior banking analyst in London, Alexander Kyrtsis, before the announcement, noting that, “Capital is scarce and a deal could enable the banks to access the market and private investors.” The merger has few if any critics, with both European Union and Greek officials pressing lenders to form stronger groups for many months now.

Just last week, share prices in Greece’s banks plummeted while the Greek government was negotiating its second bailout package, which would entail losses for bondholders. Alpha shares were down 26% and Eurobank shares down 22%. The two ended the week with a combined market value of 2 billion euros, down from 23 billion euros at the end of 2007.

Greek banks have watched deposits decline by 21.4 billion euros since December 2010 — that’s a 10% decline in less than 10 months — as the country has struggled with a recession and with averting default. Borrowing to counteract withdrawals, Greek banks owed the European Central Bank 103.3 billion euros as of June, up from 97.5 billion euros in May. The Organization for Economic Cooperation and Development has said that banks shouldn’t worry about reducing their reliance on the ECB just yet, and has encouraged them to merge with foreign lenders to gain market funding.

The founding Costopoulos family is the largest Alpha shareholder, while Qatar-based Paramount is the second-larges shareholder, with a 3.1% stake, and the Latsis shipping family is third. All three support the merger.