According to local press articles, OTP Bank has suspended negotiations to buy TAS - Kommerzbank, as no agreement could be found on price. According to Hungarian daily Vilaggazdasag, citing unnamed sources, the owner of TAS - Kommerzbank expected to receive USD 700m.
Our view:
The price being asked for TAS - Kommerzbank appears to be completely unrealistic, given the size of the bank and its limited profitability. It had assets at the end of 2005 of US$ 646.6m, loans of US$ 434.0m, deposits of US$ 415.6m, and net income of US$ 6.66m. The shareholders equity stood at US$ 65.4m at the end of 2005. If the press story is correct, the owner of TAS - Kommerzbank expected to receive a price equating to a historic P/B of 10x and a historic P/E of over 100x. Given the pricing of recent transactions, we believe the market would expect a P/B multiple in the range of 4x.
Whilst a second acquisition in the Ukraine would add scale to the recently purchased Raiffeisenbank Ukraine, in order to make strategic sense, this clearly has to come at a price that can be justified by the potential synergy. It may be that OTP Bank will find another suitable target - if not, its better off seeking organic growth in Ukraine. We do not expect a negative stock market reaction to the failure of takeover talks on the basis of price, particularly given that a number of successful transactions have been announced in recent months.