Trial balloon or accidental leak? Either way, a late-afternoon St Patrick’s Day report that Vienna-based banking group Bawag is ready to stump up €1.6 billion for PTSB landed well with investors on both sides.
Shares in Bawag soared as much as 7 per cent the next day – with shareholders welcoming the figure in the report, which initially appeared online in Die Presse, an Austrian newspaper of record, as a signal that the acquisitive lender won’t overpay to land its biggest overseas deal yet.
Investors in PTSB, meanwhile, welcomed a dispatch finally from Vienna that Bawag was on the hunt following months of speculation, and firm reporting, in these parts about the group’s interest.
PTSB confirmed on Wednesday morning that Bawag was in the mix, but also pointed out that it is “one of a number of parties participating in the formal sale process”.
PTSB shares rose 4 per cent to €3.15 between the final minutes of trading on Tuesday – as news of the Austrian report swept through the market – and early action the next day, even though a €1.6 billion cheque equates to just €2.94 per share.
While PTSB shares dipped below €3 on Friday, the message from analysts and some investors has been clear. Bawag – the only strategic type of investor known to be on the pitch – will need to sweeten its offer to win over investors, including the State, which retains a 57 per cent stake as a result of PTSB’s crisis-era bailout.
The Irish Times reported on February 27th that US private equity firms Centerbridge and Lone Star were circling PTSB alongside Bawag as second-round bids were being called at the end of March. Others are believed to be in the pack.
Deutsche Bank analyst Robert Nobel said in a report on Friday that €1.6 billion – at about 80 per cent of the tangible value of the group’s assets – is a “relatively low bid” and 9 per cent off his €1.75 billion, or €3.20 per share, target. He said a private equity buyer could make a deal work at that level. Another bank would be able to scrape out more synergies – through cost savings and revenue gains – than a private equity acquirer. Goodbody Stockbrokers analyst Denis McGoldrick also has a price objective of about €3.20.
Looking from the perspective of Bawag, UBS analyst Mate Nemes said a deal at the reported level would boost group earnings per share (EPS) by 17-29 per cent in year two after a deal, rising to 29-47 per cent the following year, depending on how much costs – read staff and branches – it can take out. “We view the potential transaction as a positive catalyst for Bawag,” he said in a note to clients.
While European banking stocks have fallen by almost 13 per cent since the Iran war broke out late last month, Irish financial shares have declined by less than 3 per cent – outperforming due to their position as likely winners if the European Central Bank starts to increase interest rates should inflation take off again.
Investment firm Sretaw, PTSB’s third-largest shareholder, owned by waste management entrepreneur Eamon Waters, has decried €1.6 billion as looking “materially too low” when considered against the bank’s strong finances, earnings-growth outlook, and the recent freeing up of capital on the group’s balance sheet following a regulatory review of its mortgage portfolio risk. That’s not to mention potential synergies.
“The headline price significantly overstates the real cost to an acquirer. Taking into account surplus capital of circa €410 million and a conservative appraisal of circa €370 million of badwill that would be generated by a transaction at that level, the economic outlay would be closer to €800 million – around half the stated price,” Sretaw, which owns 7.2 per cent of the company, said in response to questions from The Irish Times.
Badwill – also known as negative goodwill – is an accounting gain that is created when a business is acquired at a discount to its inherent value. PTSB itself used this accounting manoeuvre to good effect when it acquired a portfolio of loans from Ulster Bank in 2023 – generating a €362 million gain and avoiding having to go cap in hand to shareholders for capital to help seal the deal.
Johnny de la Hey, founder of London hedge fund Hunters Moon Capital, which has built up a 1.9 per cent PTSB stake, went further. He told the Business Post that a €1.6 billion price would represent “the deal of the decade” for Bawag. “It would be a travesty for the Irish taxpayer to sell that business at that price,” he added.
Still, it has to be said, PTSB had a market value of less than €1.3 billion before chief executive Eamonn Crowley raised the for-sale sign last October.
[ Finance firms told to put consumers firstOpens in new window ]
At €1.6 billion, the Government would pocket just over €900 million – still leaving it about €300 million short of recouping the €4 billion pumped into PTSB 15 years ago. A price of €1.75 billion would see the gap shrink to roughly €200 million.
Minister for Finance Simon Harris holds the cards on whether any deal happens. Squeezing out the best price – as important as that is – can’t be his main aim. He needs to sell to a buyer with a real plan to turn PTSB into a credible third force in the market, especially now that Ulster Bank and KBC have exited.
That will decide whether a deal will go down in history as smart reset for Irish banking – or a wasted opportunity.