SABB, Al-Awwal Possible Merger in Saudi Arabia

SABB, Al-Awwal Possible Merger in Saudi Arabia

Thursday, 17 May, 2018 - 12:00
Riyadh- Shuja Al-Baqmi
SABB and al-Awwal Banks have reached an advanced stage of merger negotiations, which is a unique step that proves the strength of the financial sector in Saudi Arabia.

Through two separate announcements on Tadawul, SABB and al-Awwal confirmed that discussions in relation to the possible merger are at an advanced stage and that the boards of both banks have reached a preliminary, non-binding agreement on the share exchange ratio, subject to a number of important steps including completion of confirmatory due diligence, finalization of the merger agreement and agreement on a number of other commercial issues.

Based on this agreement, al-Awwal shareholders would receive 0.485 SABB shares for each al-Awwal Bank share. Based on this ratio and the closing price of SR33.5 per SABB share on 14 May 2018, the merger would value each al-Awwal Bank share at SR16.3 and al-Awwal Bank existing issued ordinary share capital at approximately SR18.6 billion. This represents a premium of 28.5 percent to al-Awwal Bank share price as of 14 May 2018.

Both banks admitted that should the merger become a reality, it would represent an important transaction in the context of developing the Banking Sector of Saudi Arabia, this being a key objective of the Financial Sector Development Program under Vision 2030.

A binding agreement is yet to be entered into between SABB and al-Awwal Bank. Any binding agreement to proceed with the merger will be subject to a number of conditions, including Saudi Arabian Monetary Authority (SAMA), other regulatory authorities, and the shareholders' approval.

SABB and al-Awwal do not expect that the proposed merger will, if completed, result in any involuntary layoff of employees.

In this regard, al-Awwal share price closed at $3.71, against the backdrop of the announcement by the bank that the merger negotiations valued the stock price at $4.3, a 28.5 percent evaluation above its closing price on May 14.

These developments follow last week's launching of Financial Sector Development Program 2020, which is one of the main programs to achieve goals of Vision 2030.

The program’s objectives include creating a diversified and effective financial services sector to support the development of the national economy, diversifying its sources of income, and stimulate savings, finance, and investment by addressing the sector’s challenges.

It is underpinned by three main pillars: enabling financial institutions to support private sector growth, ensuring the formation of an advanced capital market and promoting and empowering financial planning.

These pillars are aligned with the ambitious strategic objectives of Vision 2030 for diversifying the economy, supporting emerging sectors and attracting foreign investments.

Through its first pillar, the program will work on a number of Vision 2030-related initiatives, such as enabling new types of players to enter the market, introducing incentives to the financial sector to finance small and medium-sized enterprises (SMEs) and driving toward a cashless society.

As for the second pillar, it will make the Saudi financial market more attractive to local and international investors through a number of initiatives that will see more diversified investment products and developed legislation.

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