BNP Paribas has agreed
to take control of Fortis operations in Belgium and Luxembourg, as well as the international banking franchises, for a total consideration of 14.5 billion. This transaction provides
BNP
Paribas
with
the opportunity to roll out further its integrated banking model in Europe. As a result of this transaction, BNP Paribas will have two new domestic markets, Belgium and Luxembourg, to add to its existing domestic markets in France and Italy. This deal confirms BNP Paribas position as the Eurozones leading
cross-border bank with 4 domestic markets.
The
businesses acquired consist of Fortis operations, excluding the Dutch operations acquired by the Dutch State. In particular, the acquired perimeter includes:
–
1,458 branches located in Belgium, Luxembourg, and all other countries except the Netherlands (including Poland, Turkey and France), as well as the Fintro branch network inBelgium
–
Fortis insurance business in Belgium-
Fortis investment management activities (including former ABN AMRO Asset Management)-
Fortis private banking business outside the Netherlands-
Fortis merchant banking activities outside the Netherlands
–
Fortis consumer finance activities outside the Netherlands
This acquisition brings Fortis clients and staff into the fold of one of Europes most solid banks with a strong tradition of respecting local cultures, as
demonstrated
by the successful integration of BNL in 2006. In all their
businesses,
BNP Paribas and Fortis will benefit from strong complementarities
and
will
form together new financial services group in Europe.
Following the acquisition by the government of the Netherlands of Fortis Bank Nederland (Holding) N.V., including Fortis interest ABN Amro Holding N.V. and the Dutch insurance activities, the State of Belgium will raise its stake in Fortis Bank SA/NV to 100%. Under the terms of the transaction, BNP Paribas will then acquire from the Belgian State 75% of Fortis Bank SA/NV and 100% of Fortis Insurance Belgium, and acquire 16% of Fortis Banque Luxembourg from the Luxembourg State, taking its controlling interest in Fortis Banque Luxembourg to 67%. The total consideration for the transaction will be 14.5 billion. BNP Paribas will acquire its interest in Fortis banking business in Belgium and Luxembourg for 9 billion paid in approximately 132.6 million newly-issued BNP Paribas shares. Fortis Insurance Belgium will be acquired for a cash consideration of 5.5 billion. As a consequence, the Belgian and Luxembourg states will become shareholders of BNP Paribas, with stakes of 11.6% and 1.1% respectively, and Belgium will appoint two new members to join the BNP Paribas board. The Belgian States stake will be subject, for up to 10% of BNP Paribas capital, to a 2-year lock-up.
50% of the Luxembourgs stake will be subject to a lock-up period of 1 year. BNP Paribas has reviewed Fortis structured credit portfolio. 10.4 billion of structured complex assets have been ring-fenced and put into a special purpose vehicle, in which 10% of any or losses will be for BNP Paribas. This transaction is consistent with BNP Paribas acquisition strategy and allows it to roll out its well-proven integrated banking model in Europe with the addition of franchises and two new domestic markets. BNP Paribas has a tried and tested a business model, based on the three pillars of retail banking, asset management services and CIB, which allows it to leverage this acquisition
and
create significant sustainable shareholder value.
In retail banking, BNP Paribas will become the leader in Belgium and Luxembourg, two of the countries with the wealthiest customer bases in Europe. Fortis businesses in these two countries represent 239 billion in customer deposits, allowing BNP Paribas to jump from 7th to the largest deposit bank in the Eurozone. In Belgium, the Group will have over 1,000 branches and 3 million
customers,
representing
a market share of in excess of 30%. BNP Paribas will also acquire Fortis retail networks in Poland, Turkey and France.
In Asset Management and Services, BNP Paribas will become a European top 5 player in asset management, the number 1 Eurozone private bank and the largest insurance player in
Belgium (with a 30% market share). On a proforma consolidated basis, BNP Paribas asset management business will now have 549 billion and its wealth management arm 214 billion in assets under management.
In Corporate and Investment Banking, BNP Paribas will be able to leverage Fortis attractive client base, optimise capital usage and roll out BNP Paribas risk management framework. This acquisition will reinforce BNP Paribas
diversified
and
balanced business mix, with retail representing 57% of the Groups proforma revenues.
The combination is expected to generate annual cost synergies of approximately 500 million, or 8,5% of acquired cost base, fully phased by 2011. Restructuring costs are estimated at approximately 750 million. The transaction is expected to be EPS accretive from year one.
This transaction will strengthen BNP Paribas financial profile and provide tangible value creation for its shareholders. The transaction is fully consistent with the Groups acquisition discipline. The acquisition of the banking operations implies a multiple of adjusted tangible book value of 0.7 . The acquisition of the life and non-life insurance operations implies a multiple of 1.0 2007 life embedded value.
BNP Paribas proforma Tier 1 ratio will improve by approximately 35bps. Its funding position is also reinforced due to Fortis strong deposit base and its favourable loan to deposit ratio (around 100%). Lastly, BNP Paribas exposure to Fortis structured credit assets will be limited thanks to the ring-fencing
of
the most impaired assets within that portfolio.
The agreement for the purchase of the acquired businesses has been signed and closing is subject to antitrust and regulatory approvals. 88 million shares will be issued pursuant to the standing authorisation granted to BNP Paribas Board, and the issuance of a further 44 million will be submitted to an EGM of BNP Paribas shareholders. Closing is expected to take place by year end or in the first quarter of 2009.
“BNP Paribas fully appreciates the extent of the commitment it undertakes towards Belgium, Luxembourg and all Fortis staff and customers,” says Baudouin Prot, CEO of BNP Paribas.
D.C.