Page 6 - bne_May 2021_20210501

6 I Companies & Markets bne May 2021
it to Air Bank for CZK19.75bn, 2.2 times the book value; MMB replied with an offer of CZK18.5bn, which Kellner rejected.
The new bid is in the form of a reverse takeover that values Moneta at almost CZK 41bn. PPF is in the process of acquiring just under the 30% share threshold. If it exceeded the threshold, it would have to make a mandatory offer. By taking the approach it is, PPF is now in a commanding position to push through
a merger with the larger bank that will also give it a listing. PPF proposes that Moneta issues new shares to buy Air Bank, peer-to-peer lender Zonky, and consumer lender Home Credit’s Czech and Slovak units. The ratio of the shares between the two banks would be roughly 60:40, so, with its existing shares, PPF would end up with close to 60% of the enlarged group. It would then make a mandatory offer for the remainder at the same CZK80 price, a 19% premium to the last close before the original offer announced in January. It says it does not intend to delist the combined group.
The valuation in the current bid has been criticised not so much because of the public offer price – in a research note
in January, Citi has a slightly higher target price for Moneta shares of CZK84 – but because of the valuation of Air Bank in the merger.
While Moneta is valued at around CZK40bn, or 1.5 times book value, according to Citi, Air Bank is valued at CZK26.9bn, a chunky 2.6 times book, significantly more than the rejected bid of three years ago, at a time when the pandemic is making banking valuations extremely uncertain.
“These valuations appear rich against historical valuations for the assets offered by Moneta,” said Citi, which valued the PPF assets at around half of Moneta’s.
Air Bank points to its higher rate of profitability – its ROE was double that of Moneta’s 10.8 last year, according to Citi – as well as its lean cost structure (Moneta has four times as many branches) and, in particular, what it argues are its stronger growth prospects. Air Bank forecasts it will double its profit by 2023, even without Moneta.
Air Bank has been the fastest growing bank over the past 10 years, expanding its customer base by around 100,000 a year, or 0.9 percentage points of market share, up to its current 865,000 customers or 8.1% market share. It claims a 22% share of customers switching from other banks.
Its generally wealthier and younger customers mean that there is more opportunity to sell them new products such as consumer loans, pensions and other savings products as they get older, earning the bank fatter margins and fees. Air Bank’s close relationship via the internet with its customers will assist this process.
“This is the first time a bank had such regular interactions with their customers,” said Strcula. “That gives you a huge potential which we really like.”
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Little overlap
Air Bank also argues that the merger offers the opportunity
to achieve real synergies that will drive future growth. The merged bank would already be very strong in consumer credit, with an 18% retail lending market share. It would also be able to grow in other segments that Air Bank has hardly explored up to now.
Air Bank would contribute its well-known brand (though the future joint name is so far undecided) as well as its advanced IT system (though no decision has been made on the merged IT system).
For its part, Moneta can offer its 160 branches (the fourth largest network) and its existing experience with SMEs
and pensions, as well as its building savings and mortgage products, which have been enhanced by its recent acquisition of Wustenrot’s Czech business.
“We can hasten their digital transformation which can help them,” said Strcula. “They have products we did not yet develop.”
The fact that there is little overlap in terms of customer base, with Moneta strong among farmers and small towns, reduces cost synergies but enhances potential revenue synergies.
But some analysts remain sceptical of both the Air Bank Group as a unit and the potential synergies with Moneta after any merger. On paper the Air Bank Group has 1.23 million customers, close to Moneta’s 1.4 million, but it remains three separate brands and so far there has been little overlap or cross-selling between the customers of the bank and Home Credit. Arguably the group is more of an accounting notion than a coherent business, though Air Bank deposits are used within the group for Home Credit lending.
If Air Bank merged with Moneta, the differences between them also might be more of a problem than an advantage. Air Bank’s strong image might be diluted by Moneta and its customers could drift away.
“I’m not sure how Air Bank customers will like Moneta being part of Air Bank,” said Milan Lavicka, banking analyst of J&T Bank in Prague. “They might look just like another bank.”
Similarily, it is not clear how well Air Bank’s brand will be received by Moneta’s farmers and small town dwellers. Moneta has also invested significantly in its own IT system, so there may be more costs than savings in imposing Air Bank’s technology.
“The outlook for revenue synergies, and for the earnings outlook in general, is uncertain and we think shareholders may want different exchange terms to acquire the PPF assets,” noted Citi.
However, convincing PPF to change its bid will be tough, as the failed negotiations in 2018-19 showed. “PPF is not the kind of company to accept worse conditions than it offers,” commented J&T’s Lavicka.