IN THE END, the Bank of Cyprus’ bold and ambitious bid for Greece’s Emporiki Bank collapsed, exposing the board’s inexperience and lack of know-how in the business of major takeovers. The euphoric optimism displayed by the bank’s top brass ever since the press conference in Athens to announce the over-generous bid for Emporiki evaporated on Wednesday night as the board unanimously decided to withdraw its offer.
The decision was widely-expected, after Tuesday’s announcement, saying that the BoC’s legal advisors were examining a Greek Supreme Court opinion that could affect Emporiki’s pension costs. This news was well-received by the market, with the bank’s shares rising 8.54 per cent the following day. Interestingly, the price of the share was on a downward path ever since the public offer for Emporiki was made, making a small recovery whenever there were rumours that the deal would fall through. For investors the buy-out of Emporiki was a risky enterprise which could have caused more harm than good to Cyprus’ biggest bank.
A market analyst, quoted by Reuters, hit the nail on the head. “The market does not believe that it is a good deal for Bank of Cyprus. This is why the stock is rising. The Bank of Cyprus doesn’t have the critical mass to handle a merger with Emporiki,” he was quoted as saying. The Cyprus market had reacted in the same way indicating that there was very little confidence in the bank’s ability to pull off such a deal and manage the merger successfully.
There was a host of very good reasons for the market’s negative reaction. First and foremost, the way the offer was made – prepared and announced in the space of a few days – suggested that it was a knee-jerk reaction to rumours of a hostile takeover of BoC by Piraeus Bank. The premium offered was excessive with the B of C offering 700 million euros more than its rival bidder Credit Agricole, which had more reliable information about Emporiki’s finances. As if this were not bad enough, the BoC chairman, unwisely, declared that the offer would be increased if there was a higher bid. Then there were fears that the bank’s resources would be over-stretched, while success in turning around the state-owned, heavily unionised Emporiki was far from guaranteed.
Rumours were circulating yesterday that concerns about the pension fund were merely a pretext and that the offer had been withdrawn because of fears that the Central Bank would not give its approval for the acquisition. This would have been understandable considering that the BoC board had offered to pay 3.83 billion euros for Emporiki without a due diligence investigation, which was grossly irresponsible and amateurish.
This is why Wednesday night’s decision was welcome. It was the best outcome both for the bank’s shareholders and the Cyprus economy. Perhaps the BoC top brass will have learnt something from the experience and the next time they mount a takeover bid it would be more competently executed.
