Nordic banks Nordea and DNB are selling a 60% stake in Luminor, a bank operating in Estonia, Latvia and Lithuania, to a consortium led by private equity funds managed by US investment giant Blackstone.
As a result of the transaction, Nordea and DNB will each hold approximately 20% of Luminor and maintain ongoing representation on Luminor's board of directors, Nordea said. In addition, Blackstone has entered into an agreement with Nordea to purchase their remaining 20% stake over the coming years.
The transaction represents the largest majority stake acquisition of a universal bank by private equity in the last decade globally, and one of the largest merger and acquisition (M&A) transactions in Baltic history. Closing of the transaction is subject to European Central Bank's and local supervisory authorities' approvals and is anticipated to occur in the first half of 2019.
The agreed purchase price in the upfront sale of the approximately 36% stake divested by Nordea is €600 million, valuing Luminor, which currently generates a mid-single digit normalized return on equity, at approximately €1.7 billion, approximately equivalent to the financial group's price-to-book value (P/BV). Blackstone is to pay approximately €1 billion for the 60% stake.
The forward sale of Nordea's remaining 20% stake will be carried out at a fixed valuation of 0.9x P/BV. In addition to the upfront sale and forward sale, Nordea will continue to provide funding to Luminor over the medium term, together with transitional services until 2020. The decision for Nordea to sell the shares in Luminor is pursuant to Nordea's overall ambition to simplify and focus its operations to the Nordic core markets and become an even better bank for its customers.
DNB to hang onto minorty stake
DNB, meanwhile, continues to see opportunities in the Baltics, the Norwegian economic portal E24 quotes DNB as saying. "We want to be among Luminor's minority shareholders because we believe that the company is valuable to its customers, employers and shareholders," DNB CFO Kjerstin Braathen said. "The bank has a strong digital focus, very competent employees and a comprehensive representation in the Baltic states."
Luminor CEO Erkki Raasuke said in a press release that everyday customer service will remain business as usual, and over time a new strategic owner will bring numerous advantages to both clients and the team. "There is no other independent bank in this region that covers Estonia, Latvia and Lithuania with such a significant footprint," he said. "Our partnership with Blackstone will strengthen this position for years to come, and provide Luminor with the capital needed for investments in new and exciting technologies needed to develop its digital offering as well as expanding current products and services."
Raasuke added that Blackstone is recognised for attracting exceptionally talented people with an entrepreneurial mindset. "Combining the bank's talent with our new strategic owner's international expertise will allow us to continue to deliver best-in-class services to our customers."
Blackstone: Luminor positioned to continue to lead market
"This is an exciting opportunity to invest in an excellent business operating in an attractive market," said Nadim El Gabbani, senior managing director at Blackstone. "Erkki Raasuke leads a tremendously talented management team with an outstanding track record of delivering service to customers and value to shareholders. We believe that Luminor is well positioned to continue to lead the market as an independent provider of financial services. We are excited by the partnership with management; Nordea and DNB and look forward to working together to create a stronger platform for further growth."
According to Nils Melngailis, chairman of the board of Luminor Group AB, Blackstone's strong relationships within the financial services industry, as well as their long and successful history of supporting entrepreneurial businesses make them an ideal new partner for Luminor.
"This transaction represents a significant foreign direct investment in the region and as one of the largest private equity deals in Baltic history, Blackstone's decision to invest in Luminor represents a validation of our strategy and is a vote of confidence in the economic outlook for Estonia, Latvia and Lithuania," Melngailis said. "Our long-term plan also remains to seek a stock exchange listing subject to prevailing market conditions."
Luminor is under direct supervision of the European Central Bank (ECB) and has given permission for Luminor's credit institutions to merge in such a way that the bank's head office will be in Estonia and service is provided through branches in Latvia and Lithuania. The merger transaction will be assessed by the central bank along with the Financial Supervision Authority.
"Blackstone will definitely add diversity to the ownership structure of the Baltic banks," said Kilvar Kessler, chairman of the management board of the Financial Supervision Authority, emphasising that the transparency and stability of the ownership structure are also important.
Blackstone is one of the largest investment firms in the world, managing approximately $440 billion worth of assets worldwide. The company's investment funds are focused on OTC companies, real estate, government bonds, listed companies, non-investment grade bonds, real assets and secondary markets across the world.
Luminor was established as an independent Baltic bank in autumn 2017, built on the Baltic businesses of Nordea and DNB and combining experience and knowledge from the Nordics. Nordea and DNB announced its plan to merge business operations in the Baltic countries in summer 2016. Prior to the transaction with Blackstone, DNB owned 43.5% of Luminor, with Nordea owning the rest of the stake. The bank took over over 930,000 of DNB's customers and 350,000 Nordea customers. Luminor has a total of 3,000 employees and the bank is the third largest in the Baltics. Luminor has over €15 billion of assets.
Speculation regarding Luminor's holding and before that the sale of Nordea's Baltic businesses had been ongoing for some time. The parties speculated to be interested in the purchase were Polish banks. For example, based on anonymous sources, Reuters in November 2017 reported that Poland's largest lender PKO BP had made an offer to purchase Luminor.
Editor: Aili Vahtla