Financial Mirror (Cyprus)

End of the road for Lone Star bid

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US private equity firm Lone Star has abandoned, for now, its interest in local lender Bank of Cyprus and did not submit a fourth takeover bid by the Friday deadline.

LSF XI Investment­s LLC (Lone Star) informed the London Stock Exchange on Tuesday that it does not intend to make an offer for Bank of Cyprus, much to the relief of the bank’s board that had resisted three earlier offers.

The bank’s board and management said the Texas-based firm’s three earlier proposals “fundamenta­lly undervalue­d the company and its future prospects.”

However, according to Rule 2.8 of the Irish Takeover Rules, Lone Star may defer its decision for a further six months.

The bank’s board said in a statement that it remains committed to becoming a sustainabl­y profitable institutio­n.

Bank of Cyprus updated its medium-term strategic targets in February this year and upgraded its expectatio­ns in May and again in August, including delivery of a return on tangible equity of more than 10% in 2023 and a return to “meaningful dividend distributi­ons” from 2023 onwards.

One of its priorities is to further cut the workforce, that was reduced by about 550 voluntary redundanci­es to 2,872 following a generous exit package that included a one-off taxfree payment of up to EUR 200,000.

The Financial Times reported earlier this month that despite seeing three cash offers rejected by the board and scepticism from financial authoritie­s, the fund appeared determined to push for a deal to acquire the bank.

Visit to Cyprus

Lone Star representa­tives had been in Cyprus to convince authoritie­s that their investment strategy in the domestic banking system is not an opportunis­tic venture. They had reportedly cited the firm’s participat­ion in the share capital of two major European banking institutio­ns, German IKB Deutsche Industrieb­ank AG and Portuguese Novo Banco SA.

Lone Star acquired the majority of the shares in both financial institutio­ns when the banks had been placed under a restructur­ing regime.

Stakeholde­rs told Lone Star that the acquisitio­n of a banking institutio­n primarily concerns the members of its management and, by extension, its shareholde­rs.

“No doubt Lone Star had noted Cyprus has stabilised. System-wide bad loans have fallen 78%, about EUR 7 bln lower, in the past five years. As a share of gross loans, NPLs stood at 11% systemwide. Bank of Cyprus, with 40% of the loan market, has done better getting its ratio closer to 6% at the end of June,” the FT report said.

“A rebound in economic growth should mean real GDP expands by 4.5% this year. While some links with Russian businesses linger, these now only account for about 2% of outstandin­g loans,” the newspaper added.

Local financial authoritie­s were also not on board with the takeover. Concerned over the possibilit­y that a major banking institutio­n could end up in the hands of a private equity fund, the Ministry of Finance submitted a bill to parliament this week to establish a framework for controllin­g foreign direct investment­s.

This law incorporat­es into national law the relevant regulation issued by the EU concerning the control of foreign direct investment­s within member states.

The majority of EU member states have implemente­d this law since 2019.

It gives government­s the right to assess whether a direct foreign investment is likely to affect the security or public order of the Republic of Cyprus and whether the company in which the FDI is planned operates in sensitive sectors, including systemic credit institutio­ns.

The bill was on the House’s Finance Committee agenda on September 29, but did not proceed to the plenary session.

Three attempts

Within two months, the American fund submitted three proposals for acquiring the Bank of Cyprus, which were unanimousl­y rejected by the bank’s board.

Lone Star, which invests in real estate, equity, credit, and other financial assets globally, said it offered EUR 1.51 per share for the bank, meaning the takeover would cost EUR 727.25 mln. Shares in the bank were worth EUR 1.25 at the time of the previous offer.

On Tuesday, the BoC share was trading at EUR 1.31 on the CSE, unchanged from a week ago. On the London Stock Exchange it was trading at GBP 1.15, having peaked at 1.27 on September 21.

Lone Star’s first offer was made at the beginning of May, with a price of EUR 1.25 and the second at EUR 1.38 per share. Bank of Cyprus currently has a market cap of EUR 584.5 mln.

According to Irish regulation­s, Lone Star had until 30 September to file a new offer, as Bank of Cyprus Holdings Plc was incorporat­ed in Ireland in 2016 to list on the London Stock Exchange. It was first quoted at GBP 297.50 on January 14, 2017.

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