(Bloomberg) -- Jyske Bank A/S agreed to buy the Danish unit of Svenska Handelsbanken AB, with the deal bringing the Danish lender 98 billion kronor ($9.7 billion) worth of assets.
Jyske will pay a cash consideration to be determined at the closing, plus a premium of 3 billion kroner ($420 million), the banks said in statements on Monday. Jyske shares jumped as much as 11% in Copenhagen after the bank said it wouldn’t sell new shares to finance the takeover.
The bank said June 15 it was in talks with Handelsbanken after reports it had beaten a consortium, which included Danish rivals Spar Nord A/S and Nykredit A/S, over an eight-month bidding process. Handelsbanken put its Danish and Finnish units up for sale in October as part of a plan to focus on growth in Norway and the U.K.
The Danish lender’s shares have dropped since the bank emerged as frontrunner amid concerns it would overpay because it uses a different data system and therefore faces greater integration costs than rivals. Jyske also has its own mortgage lending bank whereas Handelsbanken uses Nykredit’s Totalkredit A/S unit. Sydbank had estimated Jyske Bank would pay a total of 8 billion kroner to 9 billion kroner for the unit.
“It’s crucial that there won’t be a capital increase,” Per Hansen, an investment economist at Nordnet AB, said in a note. The takeover price “seems a bit lower than feared” while the synergies are “a little low and disappointing.”
Jyske said it expects to achieve total synergies of about 300 million kroner a year from 2024 and that it will spend 500 million kroner in one-time costs for the integration process. Handelsbanken will pay the exit fees to leave its current data platform and join Jyske’s in 2023.
Jyske will “to a large extent” finance the takeover in the form of covered bonds and won’t raise share capital, it said. The bank will also issue AT1 and Tier 2 capital for about 2.5 billion kroner.
Bad for Bonds
While the lack of equity funding pleased shareholders, it was bad news for Jyske’s bond investors, Danske Bank A/S said in a note to clients.
The structuring of the financing is “credit negative,” Sverre Holbek, an analyst at Danske, said. “Nonetheless, we continue to see positive credit implications from the take-over, which will add scale to Jyske’s operations while the acquired portfolio is also high quality.”
Handelsbanken said the sale will have “a relatively neutral impact” on its operating profit. The Stockholm-based bank said that present value of the assets will be determined on the transfer date and reduced by liabilities assumed by Jyske. The remaining amount will be paid in cash plus the 3 billion kroner premium.
It also said that work to sell its Finnish operations is continuing according to plan.
Handelsbanken shares rose 1% in Stockholm and Jyske stock was traded 10% higher in Copenhagen at 9:12 a.m.
(Adds shares from second, comment from economist in fifth)
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