The domestic banking transaction of the year can still be dramatic. At the General Meeting on June 22, the shareholders of the domestic banking house Moneta Money Bank will vote on a merger with companies from the PPF Group. Specifically with Air Bank, the Czech and Slovak installment company Home Credit and the fintech company Benxy (it operates under the Zonky brand).
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SZ Byznys has requested and has available transaction analyzes prepared for the institutional shareholders of Moneta by the American consulting companies Glass Lewis and Institutional Shareholder Services (ISS).
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These so-called proxy advisors process reports for investor organizations, such as pension funds, which are unable to prepare their own valuations of shares held. Therefore, these opinions often have a decisive weight when voting at general meetings held by companies.
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Fragmented owner
In the case of Moneta Money Bank, they will have a lot of weight, because the Czech bank has a very fragmented shareholder structure, where institutional investors with not very high shares predominate. The largest shareholders (except for PPF, which holds less than 30 percent through Tanemo), own about 27 percent of the shares (see graphics Who owns Moneta). Other shares are owned by small shareholders as individuals or also by institutions such as banks or pension funds.
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“I expect that for most foreign institutional players, Moneta will be a marginal position in the context of overall portfolios. It follows that they will most likely vote according to the opinion of the ISS and Glass Lewis. It is quite difficult to vote against their opinions. If they wanted to vote against, the funds would have to prepare a comprehensive analysis where they would justify their position, “says Cyrrus’s portfolio manager Tomáš Pfeiler.
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From Moneta’s conference calls, it was clear that at least some of the small shareholders were also opposed to the transaction. The distribution of the pros and cons can therefore be relatively balanced.
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The first step, ie the approval of the transaction itself, requires an absolute majority of the shareholders present. For the second step – an increase in share capital – 75 percent of the participating shareholders must already raise their hands.
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Obtaining such support can be very difficult due to the negative attitude of proxy advisors. “Theoretically, some funds from banking groups could vote against the decision of the ISS and Glass Lewis – investment banks usually have their own analytical departments. However, given the significant disadvantage of the transaction for shareholders outside PPF, I do not expect investment banks to largely recommend a different opinion from these advisers, ”adds Pfeiler.
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In the Western world, it is standard that when someone seeks a merger or acquisition, they try to secure the support of proxy companies. That, for example, the California Public Educators’ Pension Fund, which owns about one percent of Moneta’s shares, has already announced that it will follow the recommendation.
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PPF Group believes that the transaction is beneficial for all parties. “PPF firmly believes that the merger of the Air Bank Group’s assets in the banking and consumer finance sectors with Moneta Money Bank on agreed terms is justified. The goal is to create a leader in the retail banking market in the Czech Republic and thus increase value for all shareholders of Moneta, “said Leoš Rousek, head of communication and investor relations, for SZ Byznys.
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Moneta itself is also convinced that the transaction is advantageous. “At the moment, we do not want to comment on the opinions of Glass Lewis and the ISS. However, Moneta believes that this transaction is justified and makes sense, “said spokeswoman Anna Strnadová.
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Institutional Shareholder Services (ISS)
1. ISS acknowledges that the proposed merger with Air Bank, Home Credit CR and SR and Benxy is not without strategic justification. The merged bank will gain a better strategic position in the market and will be better able to face competition.
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2. Some shareholders feared that after the merger, Moneta would have a higher exposure to riskier consumer loans, however, consumer finance is one of the most profitable parts of the market.
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3. Compared to similar transactions in the European banking market, the announced synergies appear “ambitious”.
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4. The main issue in this transaction is valuation. ISS argues that PPF’s offer of CZK 80 per share was 19.2 percent higher in January than the so-called unaffected price, but the development of indices and comparable banks later reduced this premium. Today, the offer of 80 crowns per share offered by PPF would mean a discount (or at best no premium) to the fair value of Moneta.
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5. “Our valuation analysis suggests that the price Moneta pays for the acquisition of Air Bank may be exorbitant, even taking into account Air Bank’s higher profitability in recent years. In addition, Moneta appears to be undervalued compared to similar companies in the region, which is important given that approximately 90 percent of the consideration for the transaction will be settled in newly issued Moneta shares. The issue of valuation must be seen in particular in the context of a change of control, since PPF effectively acquires a majority stake in Moneta without paying a control premium. ‘
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6. Overall, according to the ISS, Moneta appears to be repaying assets in a transaction that is not without strategic importance, but at a high price to current shareholders. The shares of the existing shareholders will be considerably “diluted” and at the same time the shareholders will transfer control over PPF. Therefore, the ISS suggests not supporting the transaction.
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Glass Lewis
1. In Glass Lewis’s view, management and the board of directors are often in the best position – with more information and expertise available – to assess a company’s strategic and financial alternatives. Therefore, it is generally reluctant to recommend disagreement with the Board of Directors’ program or to support a different view unless certain critical issues are apparent or a convincing objection is raised.
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2. PPF sought to acquire Moneta two years ago, but due to the high price, the shareholders did not support it. Today, the structure of the transaction is different, and according to Glass, PPF believes that as the largest shareholder (almost 30 percent) it will enforce it.
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3. Glass acknowledges – like the ISS – that Moneta would gain a competitive advantage after the merger. The addition of the Air Bank group would increase the amount of deposits of the newly created bank, which would allow it to finance more retail and small business loans. In particular, consumer finance is a profitable opportunity, with “the credit risk in the Air Bank Group’s portfolio is manageable.”
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4. The purchase price is also problematic for Glass. Although financial advisers, Ernst & Young and JP Morgan, issued opinions concluding that the proposed purchase price was “reasonable” to the value of the Air Bank Group, including cost synergies, “to our knowledge, Moneta did not disclose assumptions, criteria and key conclusions. from the valuation analyzes that these financial advisers are likely to have carried out in issuing their favorable opinions. “
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5. Glass has carried out its own detailed assessment, which shows that “the transaction, as currently structured, attributes an excessively high valuation to the Air Bank group compared to similar banks in the industry.”
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6. It also mentions the “unusual structure of the proposed acquisition”, as pointed out by the shareholder Petrus Advisors. “The current structure of the transaction not only effectively eliminates Moneta’s obligation to obtain and provide an independent assessment of the transaction’s valuation, but also effectively allows Moneta to dilute the voting rights of unrelated shareholders (by allowing the PPF Group to vote). Moneta’s Board of Directors should take all possible steps to protect the interests of unrelated shareholders. Unfortunately, we believe that no such steps have been taken here. We therefore believe that the way the company has structured the consideration is very unusual and suspicious, and raises serious questions about the company’s core motivations. ”The ISS also suggests to shareholders not to support the transaction.
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