SABB and Alawwal agree to $5b merger with $77b in assets
DEAL TO CREATE SAUDI ARABIA’S THIRD-LARGEST BANK AND STRENGTHEN BANKING SYSTEM
Saudi British Bank (SABB) and Alawwal Bank have agreed a merger to create Saudi Arabia’s third-biggest lender, in a $5 billion deal that marks the first major banking tie-up in the kingdom in two decades.
The agreement, announced by the two banks yesterday but still non-binding, would create a lender with assets of around $77 billion, and is seen strengthening the banking system as Saudi Arabia embarks on a plan to transform its economy and cut its dependence on oil revenues.
SABB is 40 per cent owned by HSBC Holdings and Alawwal is 40 per cent owned by RBS Holdings NV, a consortium that includes Royal Bank of Scotland (RBS), which has been trying to reduce its stake for some time. Selling a small stake in a larger merged entity could make it easier for RBS to find a buyer, two sources close to the merger said.
If approved, the merger deal would see SABB acquire smaller peer Alawwal for 18.6 billion riyals (Dh18.2 billion, $4.96 billion). The boards of the two banks reached a non-binding agreement on the share exchange ratio, subject to several conditions, the banks said in joint statements to the Saudi Arabian bourse.
“A binding agreement is yet to be entered into between Alawwal Bank and SABB,” they said.
“Any binding agreement to proceed with the merger will be subject to a number of conditions, including SAMA [the central bank], other regulatory authorities, and the shareholders’ approval.” Merger talks began last year but progress had taken longer than expected, partly because the regulatory environment for bank acquisitions in Saudi Arabia is relatively untested.
Potential impact
Shareholders were also assessing any potential impact from the kingdom’s anti-corruption drive, two sources said in January.
The steps still to be agreed in the merger include completion of due diligence and agreement on a number of other commercial issues, SABB and Alawwal said.
It would be the first major Saudi banking tie-up since Saudi American Bank merged with United Saudi Bank in 1999, forming one of the largest local banks at the time.
If everything goes to plan, the process could be completed by the end of 2018, two sources close to the merger said.
“The merger would be a winwin situation. It would create the third-largest bank in the kingdom in terms of assets and net profit, which could reach 5.9 billion riyals annually,” said Mazen Al Sudairi, head of research at Al Rajhi Capital.
Based on the preliminary agreement, Alawwal shareholders would receive 0.485 SABB shares for each Alawwal share, they said.
Based on the exchange ratio and the closing price of 33.5 riyals ($8.93) per SABB share on Monday, the merger would value each Alawwal share at 16.3 riyals and Alawwal’s existing issued ordinary share capital at approximately 18.6 billion riyals, the banks’ statement said. This represents a premium of 28.5 per cent to the Alawwal share price, the banks said.
The combined entity is valued at a price to book ratio of 1.4 and 14 times price to earnings for the full year of 2018, said Jaap Meijer, managing director and head of equity research at Arqaam Capital in Dubai.
SABB and Alawwal said they did not expect the merger to result in any involuntary layoffs of staff.
Any binding agreement to proceed with the merger will be subject to a number of conditions, including SAMA.” Boards of SABB and Alawwal