BBVA’s Board of Directors has agreed to launch a voluntary takeover bid for the 50.15 percent stake it does not own in Garanti BBVA, with a price of 12.20 Turkish lira per share. The bid will be carried out after BBVA receives all the necessary regulatory approvals. The transaction is positive for BBVA shareholders since it will propel the Group’s growth in one of its main markets, generating a high return on the investment, with a very limited impact on capital. The price offered represents a premium of 34 percent over the volume weighted average price of the past six months, which makes it very attractive for Garanti BBVA shareholders as well.
“This transaction represents a great opportunity to invest in our franchise in Turkey and create value for our shareholders,” said BBVA Chairman Carlos Torres Vila. “Additionally, the price is very attractive for Garanti BBVA minority shareholders,” he added.
Assuming that all Garanti BBVA shareholders accept the offer, and considering the profit estimated by analysts for the Group and the Turkish franchise, the transaction would increase profit per share by 13.7 percent in 2022, and the tangible book value per share¹ by 2.3 percent as of September 2021. Likewise, the maximum impact expected on the Group’s CET1 capital ratio¹ as of September 2021 would be very limited (-46 basis points).
BBVA is offering Garanti BBVA shareholders a unique opportunity to sell their shares at a very attractive price. The expected compensation for shareholders accepting the offer is 12.20 Turkish lira for each share of Garanti BBVA, which represents a 34 percent premium over the volume weighted average price (VWAP) of the past six months, 24 percent over the VWAP of the last month, and 15 percent over the market price as of Nov. 12, 2021.
The maximum aggregate amount to be paid by BBVA is 25,697 million Turkish lira (equivalent to approximately €2,249 million²), in cash, should all Garanti BBVA shareholders sell their shares. The offer is subject to no conditionality and BBVA will be satisfied with any resulting level of ownership. In the event that not all Garanti BBVA shareholders accept the offer though BBVA exceeds a 50% stake, BBVA could increase its holding without launching a subsequent takeover bid.
The launching of this voluntary takeover bid is subject to the corresponding regulatory approvals. The bank estimates the closing of the transaction will take place during the first quarter of 2022.
Turkey is a strategic market for BBVA. While it faces some volatility in the short term, the country’s economic growth potential, its population pyramid, its commercial ties with Europe and the low banking penetration, they all make it an attractive market in the long term. Turkey has about 84 million people, with an average age of 32 years. BBVA Research estimates that the country’s GDP has a growth potential of 3.5 percent per annum. It is a relevant trade partner for Europe: in 2020, 56 percent of Turkish exports were for this continent. And growth opportunities in the banking business are very high: household debt accounts for 17 percent of Turkey’s GDP, compared to an average 69 percent for the European Union.
With a market share among private banks of 20 percent in loans in Turkish lira and 19 percent in deposits, Garanti BBVA is the main private bank in the country, and the largest by market capitalization. As of September 2021, it had 21,651 employees, 5,535 ATMs, and 1,007 branch offices. It also boasts the best figures in the sector in terms of profitability (with ROE of 19.3 percent, compared to a 15.6 percent average for its competitors) and asset quality (with an NPL ratio of 4.0 percent vs. 5.2 percent in average for the sector, and a coverage ratio of 77 percent vs. 69 percent). Garanti BBVA also stands out above the Group’s average in digitization, both in digital sales (83 percent of the total units), and digital customers (78 percent of mobile penetration).
This transaction will also optimize BBVA’s solvency ratios, given that currently only c.70% of the capital provided by Garanti BBVA minorities is considered on the CET1. This explains that the maximum impact of the transaction on the CET1 capital ratio is to be some €1.4 billion (equivalent to -46 basis points) compared to a maximum amount of some €2.2 billion to be paid by BBVA, assuming that all Garanti BBVA shareholders accept the offer.
“Discipline in capital allocation guides all our investment decisions, as this transaction is showing,” said BBVA CEO Onur Genç. “The sale of the U.S. subsidiary provides us with strategic optionality to, among other things, invest the excess capital in our main markets,” he added.
BBVA first invested in Garanti in 2011, with the acquisition of a 25.01 percent stake, through a purchase of shares from Dogus and General Electric. In 2015, BBVA became Garanti’s leading shareholder, increasing its stake to 39.9 percent with the purchase of an additional block of shares from Dogus. In 2017, BBVA increased its stake to its current 49.85 percent.
¹The determination of the impact on CET1 and tangible book value per share was made taking into consideration the group’s financial statements as of September 30, 2021, assuming the impact on CET1 of the 3,500 million euro share buy back program already announced to the market, and an exchange rate of 11.43 Turkish lira per euro. The amount of the impact on Common Equity Tier 1 and tangible book value per share will vary from the date of this disclosure up to the date of closing of the voluntary takeover bid due to, among other circumstances, changes in the book value of the Company and changes in the Euro/Turkish lira exchange rate.
²Exchange rate of 11.43 Turkish lira per euro, as of Nov. 12, 2021.
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