Mizrahi-Tefahot to buy Union Bank for $400m.

Mizrahi-Tefahot Bank, Israel’s third-largest lender, has agreed to buy smaller rival Union Bank of Israel for about NIS 1.4 billion ($400 million) in shares to better compete with the country’s top two lenders.

Shares in Union, the country’s sixth-largest bank, rose 5.1% following news of the deal on Tuesday, while Mizrahi-Tefahot’s were up 2.5%. The companies did not give a price per share for the deal.

Under the terms, Mizrahi-Tefahot will buy the 75% held by Union’s controlling shareholders, including Yeshayahu Landau and Shlomo Eliyahu Holdings. It will seek to buy the remaining 25% through an offer to the public.

The agreement is subject to regulatory approval as well as reaching a deal with Union employees on an efficiency plan.

Many bank employees have been protesting since Mizrahi-Tefahot announced it was in talks with Union in July, fearing job losses. Mizrahi-Tefahot is Israel’s biggest mortgage lender, with a market value of NIS 14.4b.

Mizrahi chairman Moshe Vidman and CEO Eldad Fresher said this would be one of the most significant transactions in the Israeli banking sector in years.

“It will significantly improve Mizrahi-Tefahot’s ability to compete with the large banks,” they told a meeting of the board, according to a statement from the bank.

Israel’s banking system is dominated by Hapoalim and Leumi, which together hold a market share of about 60%. The Bank of Israel has for years pushed for a third large bank to compete.

Media reports have said Union’s workforce of about 1,200 would likely be halved following the deal and most of its 36 branches closed, though the companies have declined to comment.

Citi analyst Michael Klahr said he expected voluntary retirement programs to cost up to NIS 500m., but that hurdles remained, including reaching a deal with Union’s workers. (Reuters)