Jyske Bank to buy Handelsbanken’s $10b Danish unit

Bloomberg

Jyske Bank agreed to buy the Danish unit of Svenska Handelsbanken, in what is potentially the biggest bank deal in Denmark in two decades.
Jyske will pay a cash consideration to be determined at the closing, plus a premium of $420 million for the unit which has assets of almost $10 billion, the banks said in statements on Monday. Jyske shares jumped as much as 14% in Copenhagen after the bank said it wouldn’t sell new equity to finance the takeover.
The total deal will probably amount to more than 8 billion kroner, according to an estimate by Mikkel Emil Jensen, an analyst at Sydbank. That would make it bigger than Jyske’s 2014 purchase of mortgage lender BRFkredit, which cost about 7 billion kroner and the largest since Danske Bank in 2001 paid about 25 billion kroner for RealDanmark, according to M&A data compiled by Bloomberg.
Jyske said June 15 it was in talks with Handelsbanken after reports it had beaten a consortium, which included Danish rivals Spar Nord and Nykredit, 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 UK.
The Danish lender’s shares had 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 unit. Sydbank had estimated Jyske Bank would pay a total of
8 billion kroner to 9 billion
kroner for the unit.
“The price is in line with expectations, but it’s very positive for shareholders that Jyske isn’t issuing new stock to finance the deal,” Jensen at Sydbank said.
“Shareholders will probably have to live with Jyske not doing buybacks for a long time but they avoid a dilution now.”
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.
“The synergies are a bit lower than expected, but that probably reflects that this will be a soft takeover where we shouldn’t expect to see a lot of job cuts and firings,” Jensen said.
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.
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 1.7% in Stockholm.