The National Commercial Bank announced today, Sunday, that it has signed a binding merger agreement with Samba Financial Group, and its firm intention to continue implementing the merger deal between the two banks.
Under the terms of the merger agreement, the merger will take place by merging the Samba Group into the National Bank and transferring all its assets and liabilities to the National Bank.
Upon the completion of the merger, the National Bank will continue to exist. As for the Samba Group, it will expire and cancel all its shares. The National Bank will issue new shares to the shareholders of the Samba Group. The reference to “the merging bank” in this announcement is a reference to the National Bank after the merger is completed.
Upon completion of the merger, the shareholders of Samba Group will acquire new shares in the National Bank according to the swap factor, according to which the shareholders of the Samba Group will acquire 0.739 shares in the National Bank for every share they own in the Samba Group “Swap Factor”.
Al-Awad shares will be issued by increasing the paid-up capital of the National Bank from 30 billion riyals to 44,780 billion riyals and increasing the number of its issued shares from 3 billion to 4,478 billion shares, which represents an increase of 49.3% in the current capital of the National Bank. Based on the swap factor and the closing price of the share, the Ahli Bank share amounted to 38.50 Saudi riyals as on the date of 10/8/2020, which is the last trading day prior to the date of publishing this announcement.
The valuation of the Samba Group’s share price for merger purposes is 28.45 Saudi riyals, and the total value of the issued Samba Group shares is estimated at 55.7 billion riyals.
The above valuation represents an increase in the share price of Samba Group by 3.5% compared to the closing price of Samba Group’s share in the Saudi Stock Exchange (Tadawul) of 27.5 riyals as on 8/10/2020, the last trading day prior to the date of this announcement.
It also represents an increase in the share price of Samba Group by 23.7% compared to the closing price of Samba Group’s share of 23 riyals as on 6/24/2020 (which is the last trading day prior to the date of the two banks’ conclusion of the framework agreement).
The swap coefficient reflects a value representing 1.20 times the tangible book value of the Samba Group as on the date of 6/30/2020 AD, based on the swap factor and the closing price of the share of AlAhli Bank of 38.5 Saudi riyals as on 8/10/2020, which is the last trading day. This announcement precedes the date of publication.
Upon completion of the merger, the current shareholders of the National Bank will own 67.4% of the merging bank’s capital, and the Samba Group shareholders will own 32.6% of the merging bank’s capital.
Major shareholders of the new entity
The major shareholders in the merging bank will be the shareholders, the Public Investment Fund with an ownership rate of 37.2%, the Public Pension Agency with an ownership rate of 7.4%, and the General Organization for Social Insurance with an ownership ratio of 5.8%.
It should be noted that if the calculation of the shares due to any of the shareholders of the Samba Group resulted in fractions of shares, then it will be dealt with according to the mechanism that will be clarified in a circular that will be announced later to be published and the members of the Board of Directors of the National Bank believe that the terms and conditions of the merger are fair After receiving the advice of the company. B. Morgan Saudi Arabia as the financial advisor to the National Bank of Egypt in the matter of the merger, regarding the financial aspects of the merger.
GB Morgan Saudi Arabia, when providing this advice, took into consideration the commercial assessments of the National Bank of Directors in this regard.
It should be noted that there will be no direct change in the business of the two banks with regard to customers as a result of this announcement, as both banks will continue to operate their business independently and separately and as usual until the completion of the merger.
In addition, the National Bank does not expect that the merger will result in a compulsory layoff of employees, and it should be noted that the completion of the merger is not guaranteed as it is subject to several conditions and approvals from the collateral obtaining the statutory approvals in addition to obtaining the approval of the shareholders of the two banks on the merger.
The merger agreement also included specific cases for terminating the agreement and stopping the merger. Paragraph 3 of this announcement includes more details regarding the conditions for completing the merger and cases of termination.
Strengthening the competitive position
The merging bank will become the largest bank in the Kingdom and a leading bank in the Middle East, with a market value of 171 billion Saudi riyals (equivalent to 46 billion US dollars).
At the local level, the merging bank will become the largest bank in the Kingdom by serving about 25% of the retail and commercial banking sectors 2. The merging bank will also have assets amounting to 837 billion Saudi riyals (equivalent to 223 billion US dollars), which represents 32% of the market share 2 4, and working loans worth 468 billion Saudi riyals (equivalent to 125 billion US dollars) 3 which represent 29% of the market share 24, deposits of about 568 billion Saudi riyals (equivalent to 151 billion US dollars) 3, which represents 30% of the market share 2 4, and a semi-annual operating income of about 15 billion Saudi riyals) equivalent 4 billion US dollars (3 which represents 30% of the market share 2 4, and a net income of about 7 billion Saudi riyals)
Equivalent to US $ 2 billion (3) which represents 38% of the market share 2 4 and a combined equity base of 120 billion Saudi riyals (equivalent to US $ 32 billion) 3. The merging bank in terms of net income will become the first bank in the East region Middle 2.
The merging bank will have a balanced global banking platform in all banking sectors. The operating income 1 of the merging bank results from the following sectors: (41%) of the operating income is a result of retail banking services, (25%) of the operating income is a result of corporate banking services, (23%) of the operating income is a result of treasury activities,) (6%) of operating income results from international banking services and (5%) of operating income results from financial market services.
The expanded scope of the merging bank’s business will contribute to achieving the highest levels of returns and productivity rates at the level of the banking sector.
The motives behind this process are numerous, and can be summarized as follows:
First: Keeping pace with the Kingdom’s vision 2030 by creating one of the largest Gulf banks with an expected market share of more than 15 percent of total loans, while the volume of assets of the new bank will reach 802 billion riyals, to occupy the third place in the Gulf after Qatar National Bank and First Abu Dhabi Bank.
Second: Diversification of the customer base and greater ability to compete locally and regionally. The merging bank may also be able to attract new customers, which will allow it to increase its market share. It is expected that the market share within the Kingdom of the new entity will increase in the event of completion of the deal to 29 percent of the total loans provided Banks as well as from total deposits, about 192 billion riyals ahead of its closest competitor, Al-Rajhi Bank.
Third: Reducing operating expenses by raising the efficiency of the workforce, improving the infrastructure and negotiating power, reducing the cost of financing, in addition to reducing marketing expenses. For example, the merger of SABB and the first bank aimed to reduce expenses by between 10 and 15 percent.
Fourth: Enhancing the strength of capital to meet future challenges that may face the sector globally and locally, especially during the current economic crisis and its direct consequences for banks, including increasing allocations, non-performing loans and declining interest income. Both banks enjoy low levels of risk, with the non-performing loan ratio of about 1.9 and 1.3 percent for Al-Ahly and Samba, respectively. As at the end of last year, the ratio of primary and cushioned capital to risk-weighted assets was 18.0 percent for Al Ahli Bank and 20.5 percent. For the Samba Group, which are considered high rates indicating the durability of the two banks.
Fifth: The presence of joint shareholders, as the Public Investment Fund, the Public Pension Agency, and the Public Institution for Social Security own approximately 55 percent and 42 percent of the National Commercial Bank and the Samba Group, respectively.
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