BBVA acquires Turkish bank stake for 4.2 billion euros

BBVA said Tuesday it had agreed to acquire a 24.9-percent stake in Garanti Bank for 4.195 billion euros in a deal that will give it joint management of Turkey's second-largest lender and the option of control after five years.

Spain's second most powerful bank is to fund the deal through a 5.06-billion-euro rights issue priced at 6.75 euros per share, a 29-percent discount to its closing price on Friday. The capital increase could dilute earnings per share by 8-9 percent. The 1-for-5 rights issue is not conditional on the Garanti deal, which Chairman Francisco González said "strengthens the growth profile" of BBVA.

Turkey has a population of 75 million and an economy that is expected to enjoy average annual growth of 5 percent over the next few years. As the bank extends its geographical reach, González predicted Spain would account for under 10 percent of group earnings within five years, compared with about 30 percent today. The operation along with the rights issue rights issue will raise BBVA's core capital ratio from 8.2 percent to 9 percent over the next year, assuring the bank meets the new international capital requirements.

Garanti, which has assets of 60 billion euros and a payroll of some 20,000, is expected to post earnings next year of 1.8 billion euros, which would bring in 450 million euros for BBVA. The BBVA chief assured shareholders the bank would maintain its 0.42 euros dividend per share.

BBVA will buy 6.29 percent of Garanti from the Dogus family for 1.48 billion euros and a further 18.6-percent stake from General Electric for 2.7 billion euros. That will leave the Dogus family also with a 24.9-percent stake, with the rest of the company's shares in the hands of minority interests. BBVA and Dogus have agreed not to sell any shares in Garanti to third parties for three years.

The two will each have four representatives on the Turkish bank's board of directors, with the chief executive officer to be appointed by common accord. The Spanish bank has the option to buy a further 1 percent of Garanti after five years but also has an option to acquire more shares from Dogus after three years.