Banco Popular makes all-share offer for Banco Pastor

Banco Popular said Friday it had made an all-share offer for 100 percent of Galician-based Banco Pastor that values its smaller rival at 1.362 billion euros.

The deal consists of Spain's fifth biggest lender taking over Pastor by exchanging 1.115 of its own shares issued through a capital increase for each of Pastor's shares. It is also offering 30.9 new shares for each of the convertible bonds issued by Pastor.

The deal is subject to acceptances from Pastor shareholders representing a minimum of 50.1 percent of the bank's capital. The Pedro Barrié de la Maza Foundation, which is controlled by the Arias family, is Pastor's biggest shareholder with a 42.2 percent stake, according to the CNMV. Since Popular is worth six times more than Pastor in the stock market, the offer for the Galician bank will give current Popular shareholders 80 percent of the combined bank.

Of the 1.362 billion euros, 1.085 billion corresponds to Pastor issued share capital and 277 billion to bonds that must be converted into shares.

The offer values Banco Pastor at 3.975 euros per share, a premium of 31.2 percent to the latest Pastor share price. The National Securities Commission (CNMV) earlier Friday suspended trading in both Pastor and Popular following reports of their intended merger. At the time, Pastor was up 4.84 percent at 3.03 euros. Popular's shares in turn were up 1.34 percent at 3.565 euros.

"Banco Popular, in the normal course of its corporate activities, has studied the possibility of reaching a strategic agreement with key shareholders in Banco Pastor to form part of its shareholder structure as a merger partner," Popular said in a statement to the CNMV. It said "both banks have the same cultural and business profile."

Pastor also issued a statement to the CNMV that was practically identical to the one issued by Popular. Pastor will retain its own brand and traditional areas of business.

Popular earned 305 million euros in the first half of this year, compared with only 38 million for Pastor. The combined bank would have assets of 174 billion euros. On that basis, Popular will remain the fifth largest in Spain after Santander, BBVA, Bankia and Caixabank. Popular has 2,222 branch offices, compared with 588 for Pastor. The former has a workforce of 14,111, while Pastor has 4,124 employees. Founded in 1776, Galicia-based Pastor is one of Spain's oldest banks.

Pastor's current non-performing loan ratio is 5.73 percent, slightly higher than Popular whose default rate is 5.58 percent. Pastor, which is heavily exposed to the ailing property sector, failed the stress tests carried out on European banks in July, emerging with core capital of three percent, compared with the minimum required of five percent. Popular scraped by with core capital of 5.3 percent. However, including generic provisions and convertible bonds, Popular's core capital was 7.4 percent and Pastor's just above five percent. Projections drawn up by the European Banking Authority and the Bank of Spain show that both banks would suffer heavy losses under their base scenario: 67 million euros in the case of Pastor and 131 million for Popular.

At the end of 2010, Pastor's exposure to the real estate sector amounted to loans worth 4.813 billion euros, almost 20 percent of its total portfolio, while Popular's exposure was 17.84 billion euros, 17.5 percent of total lending.