Santander to absorb unit Banesto through share swap

Leading Spanish bank Banco Santander said Monday it plans to absorb its Spanish retail unit Banesto and its private banking subsidiary Banif through a merger as part of a restructuring that will see the closure of 700 branches and after which Santander will operate under a single brand.

The minority shareholders of Banesto, who hold 10.26 percent of its capital, will receive existing shares in Banco Santander at a rate of exchange that will include a premium of 24.9 percent over Banesto's closing share price last Friday.

After being initially suspended, Santander’s shares were down 0.97 percent at 5.843 euros at 2.30pm. Banesto’s shares were up 19.26 percent at 3.566 euros.

“This transaction is part of the restructuring of the Spanish financial system, which involves a significant reduction in the number of competitors and the creation of larger financial institutions,” Santander said in a statement. “Against this backdrop, Banco Santander has decided to operate under a single brand in Spain by absorbing Banesto and Banif.”

Santander, Banesto and Banif currently have 4,664 branch offices in Spain. Santander said the group’s combined market share of branches in Spain will increase from 10 percent in 2008 to 13 percent in 2015, as the expected reduction in branches is considerably less than the decline in the sector as a whole. At the end of 2015, Spain will have an estimated 30,000 bank branches, an overall decline of 16,000, or 35 percent, in eight years.

Santander said the reduction in total employment stemming from the branch closures will be implemented gradually, with personnel to be transferred to other units within the group in Spain and overseas.

"Good for everyone"

The restructuring will generate cost savings of about 420 million euros in the third year after the deal is completed. Revenues are expected to increase by 100 million euros, providing total annual pretax synergies of 520 million from the third year. “The merger will add value from the start, increasing earnings per share by three percent in the third year,” the bank said.

Santander said the absorption of Banesto will have a neutral effect on its capital ratios.

“This is a good transaction for everyone,” Santander Chairman Emilio Botín said in a statement. “For the shareholders of Santander and Banesto, who will receive a premium of 25 percent and shares with the most attractive dividend in the market; for customers of Banesto, who will have access to the Group’s 14,000 branches around the world; and for employees, who will be able to have international careers. Santander is the strongest, most solid bank in Spain.”

The absorption of Banesto will see the disappearance of a brand that dates back to 1902. Santander acquired Banesto in 1994 after the bank was taken over by the Bank of Spain a year earlier when a huge hole was found in its books.