LHV to acquire Danske Bank’s Estonian pension funds on Monday (1)
LHV Group’s asset management subsidiary, LHV Varahaldus, will acquire the Estonian pension funds of Danske Bank on Monday. The deal will be followed by a merger and increase the value of LHV's pension funds by 40%.
"After today's transaction, the number of clients saving in LHV's second pillar pension funds will increase by 30% and the volume of LHV's pension funds will increase by 40%. The merger of the asset management companies contributes to our goal of providing the best long-term investment service to the clients of the second pillar pension funds," CEO of LHV Varahaldus Mihkel Oja said in a stock exchange disclosure.
The share purchase agreement was signed on Jan. 29, 2016. In February LHV Varahaldus increased its share capital by €8.2m by issuing new shares to its parent company, LHV Group. LHV Group also bought €600,000 worth of subordinated bonds of LHV Varahaldus.
The preliminary price for the 100% stake in Danske Capital has been set at €11m, consisting of a fixed amount of €6.6m as well as the size of Danske Capital's equity at the end of March. The final price will be determined within 45 business days following the transaction, after the balance sheet of Danske Capital as of Apr. 30 has been audited.
Following the transaction, Danske Capital and LHV Varahaldus will merge. A notarized merger agreement will be signed and published on May 3. The merger will enter into force after authorization by the Estonian Financial Supervision Authority.
After the merger, expected to become effective in the third quarter, LHV Varahaldus is planning to merge pension funds with similar investment strategies.
Danske Capital manages three mandatory and two voluntary pension funds, the assets of which amount to a value of €250m. Danske's mandatory pension funds have 39,000 active clients.
LHV Varahaldus manages five mandatory pension funds, one voluntary pension fund and one UCITS fund. LHV's pension funds have over 130,000 active clients, and the assets under its management amount to €610m.
LHV Varahaldus won't participate in the LHV Group's upcoming IPO
The asset management subsidiary will not participate in the group's initial public offering of shares so as to avoid a possible conflict of interest.
"We're not taking part in the IPO," CEO of LHV Varahaldus Mihkel Oja told the Baltic News Service at the press conference where the share offer was presented. "But it's of course a good investment," he added.
"Conflicts of interest are a sensitive topic and it's a situation that should be avoided," Oja said when asked whether it would be legally possible for the pension fund manager to take up shares.
Subscription for IPO shares of LHV Group started on Monday. The volume of the issue is up to €13.9m, the subscription period ends on May 16.
LHV is offering up to two million shares at a price of €6.95 per share to retail and institutional investors in Estonia, of which €1 is the nominal value and €5.95 euros the issue premium.
LHV Group earned a net profit of €3.5m in the first quarter of 2016, €2.9m of which in banking, €600,000 in asset management, and €300,000 in its Lithuanian branch. The group's return on equity was 16.8%.