Following the closure of the acquisition, Erste Bank has launched an offer for BCR-employee shares, which represents an 8% (63.4m shares) stake in the bank. Employees may choose between a cash offer (€ 6.50 per share, representing a 15% discount to the €7.65 per share paid by Erste Bank for its controlling stake) and a share exchange (ratio of 6 BCR shares for 1 Erste Bank share, equating presently to € 8.85 per share). Employees opting for the share exchange will be subject to a 1-year lock-up period but may sell up to 50% of their Erste Bank shares immediately at a price of € 45.90 per share (equating to € 7.65 per share).
Our view:
The intention to make an offer for employee shares was previously flagged by Erste Bank so the news of the offer should have no trading impact. It is obviously more favourable for Erste Bank shareholders if BCR-employees choose the cash option but the discount will likely result in a large proportion opting for the share exchange. The value of € 8.85 per share implied by the offer represents a 16% premium to the already full price paid by Erste Bank in the acquisition of the control stake.
We acknowledge the high growth of the Romanian market and restructuring potential of BCR but management guidance for a 40% CAGR of net earnings in 2006-2009 seems very ambitious, considering that competition is also intensifying, with many banks aggressively expanding their branch networks. We more conservatively forecast a 35.2% CAGR of net earnings for BCR. Our fair value estimate for BCR of € 8.26 per share implies a 2007F P/E of 22.2x.