Making Sense on PNB-ABC Merger

The Philippine National Bank (PNB) and Allied Banks (ABC) merger where PNB will be the surviving entity was approved by PNB’s shareholders way back 2008. The merger did not immediately push through due to regulatory issues specifically on ABC’s 27.78% stake in Oceanic Holdings which owns Oceanic Bank Holding Inc. US Federal reserve requires ABC to divest the stake before merging with PNB.[1]

In order to expedite the merger, ABC decided to transfer their stake in Oceanic Holdings to a trust fund on October 11, 2011 to be later sold to a third party.[2] As of July 26, 2012, PDIC approved the merger and BSP on August 2, 2012. Just recently, September 9, 2012, SEC approved the merger. With ABC’s Oceanic Holding stake divested and all three regulatory bodies giving the green light, PNB-ABC merger is good to go.

Using the terms of the merger as disclosed in the Philippine Stock Exchange,[3] we can have a rough calculation of PNB’s net assets and net income per share after the merger as shown below:

The merger would cause dilution of PNB shareholders’ EPS from P5.83 to approximately P4.78 or 15% decline but will increase PNB’s book value attributable to common shareholders from P49.03 to P57.22 or 17% increase. Other business developments due to the merger transaction that is not immediately quantifiable are economies of scale, market share growth, and access to new markets.

Market share growth and access to new markets is achieved by PNB in the merger by boosting their current 344 branches to 668 branches with the inclusion of ABC’s 324 branches. This also means that PNB will be able to instantly increase their branches in a profitable geographical market such as the Metro Manila thus creating a more cohesive franchise. Economies of scale will be achieved through reduction of senior management and redundant operations functions. For the year 2011, ABC’s management received total compensation and bonuses of 808 million.

Sources:

  1. “PNB-Allied Bank merger to be completed in 2010” http://www.gmanetwork.com/news/story/178398/economy/companies/pnb-allied-bank-merger-to-be-completed-in-2010
  2. “Board approval of execution of Voting Trust Agreement re: Oceanic Bank’s shares,” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-7306_PNB.pdf
  3. “Board approval of amendment of Plan of Merger with ABC, resignation/election of directors,” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-8677_PNB.pdf

Disclosure: No position on any stock mentioned above.

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

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