IT DID NOT take Greek investment firm Marfin Financial Group very long to announce its ambitious plans for Laiki Group, of which it became the biggest shareholder about a year ago when it bought the 10 per cent stake of HSBC.
One of Greece’s fastest growing groups, Marfin, never made a secret of its intention to use the Laiki Group, Cyprus’ second largest financial institution, to establish a bigger organisation.
This was what yesterday’s announcement was all about: Laiki launched a bid for 100 per cent of Marfin Financial Services and Greece’s Egnatia Bank. The bid for the two companies would be financed by an issue of new shares, priced at £3 each and would have a total value of £1.39 billion. If successful, the merger would make the new grouping a leading player in the small-to-mid-sized banks league, analysts said, adding that the profitability capacity would increase substantially.
By the end of 2006, the new group will have assets worth 22 billion euros and 300 branches. “The combined entity will be big enough in terms of equity capital not to be ignored,” an Athens-based market analyst was quoted by Reuters as saying. “It will be interesting to see what growth strategy will be rolled out. Fast growth requires systems and people. The merged group will have the funds to support this,” he added.
But while the merger has great potential, there are also risks involved, described by analysts as “execution risks”. Merging three different organisations, with different work practices, a different company ethos, different management styles, operating in different markets, carries many risks.
Despite the execution hazards, the initial market response has been positive, presumably because the move is being orchestrated by Marfin whose top management has the experience and know-how for such projects.
If the merger goes ahead it will have a big impact on the Cyprus market, as well as it will change the balance of power in the banking market. Laiki will have a much greater potential for growth, both in Cyprus and abroad, even though it is more likely it would be looking beyond the island’s boundaries for its main expansion. Marfin Financial Services is 31.5 per cent owned by Dubai Financial, an investment fund, which suggests that a planned expansion drive could be in the Middle East.
For the Cyprus market it is an indication of the big changes our economy is set to undergo, with big companies from abroad moving in and eating up the relatively small local firms. No profitable company is safe from the threat of a takeover – not even the Bank of Cyprus, which had made botched bid for Emboriki Bank last June, in an effort to protect itself from such a possibility.
Perhaps mergers with foreign firms of a similar size are the least painful option for the leading Cypriot companies, which are fast realising that the years of their supremacy now belong to the past.
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