EBI-NBD provides a merger model for Gulf banks

Combined Emirates NBD bank would be UAE’s largest lender and Gulf’s largest bank by assets.
EBI-NBD provides a merger model for Gulf banks
By Daniel Stanton
Wed 01 Aug 2007 12:00 AM

Emirates Bank International (EBI) and National Bank of Dubai (NBD) have released the details of their planned merger, which could set a precedent for other banks in the heavily banked UAE.

The merged bank would be called Emirates NBD and would be the Gulf's largest bank by assets. It would have a combined market capitalisation of US$11.3 billion, ranking it fifth among GCC banks.

Each EBI share will be exchanged for one share in the new company, while each NBD share will be exchanged for 0.95 shares in Emirates NBD. This values NBD shares at AED8.84, a premium of 14% on the share price on the day prior to the announcement of the merger.

Shareholders of both banks still need to approve the offer, but it has been approved by the boards of both banks and the Government of Dubai, as a shareholder in both banks, has confirmed its intention to accept the offer.

His Highness Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice President, Prime Minister and Ruler of Dubai, said: "The integration of two of the UAE's firmly established and best-known financial institutions will create a UAE champion and a regional leader. This merger reinforces Dubai's position as a world class financial centre."

Rick Pudner, CEO of Emirates Bank, has been proposed as CEO of the new company. HE Ahmed Humaid Al Tayer will be chairman of Emirates NBD, while Abdullah Mohamed Saleh will be appointed vice chairman.

The new bank is expected to be the UAE market leader in terms of total assets, loans and deposits. It will have 99 branches and 429 ATMs in the UAE.

It will also have a presence in Saudi Arabia, Qatar, the UK, Jersey, India, Iran and Singapore.

The merger is likely to create synergies worth AED346m (US$94m) by 2010. Of this AED151m is from cost savings, including a AED52m saving from retail branch and ATM network consolidation, the integration of their card acquiring businesses and pricing advantages on marketing spend.

The merged bank is expected to save AED38m on its IT operations when it reallocates personnel from NBD to EBI's dedicated IT centre.

There are also AED195m in possible revenue synergies created from cross-selling opportunities and an increased capacity for cross-border risk.

However, Al Tayer said that there were unlikely to be job cuts, since the merged bank would be growing. He said: "We are going to expand and utilise all our resources. I think we need all of those HR resources to support this merger."

Rating agency Moody's said that the merged institution could benefit from diversified business lines, with possible positive implications for its rating. Both banks currently have bank financial strength ratings of C- and local and foreign currency deposit ratings of A1.

Peter Carvalho, VP and senior analyst at Moody's Middle East office, said: "Moody's believes that ENBD will benefit from a stronger franchise and capitalisation, an expanded product range, greater geographic reach and better positioning in the corporate and retail business. Going forward, the synergies expected will generate a better value proposition for the merged entity."

However, the agency also said that there were possible risks posed if the integration of the two banks was not seamless, and a possible impact on business as the banks operate independently while working towards the merger.

The proposed merger needs to be approved by a majority of shareholders at an EGM likely to be held before the end of September, with integration expected to take 18-24 months.

If all goes to plan, it could encourage other banks to look at consolidation.

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