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Sept. 18, 2020, 3:03 a.m. EDT

CaixaBank, Bankia OK merger to create top lender

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By Pietro Lombardi

--The boards of CaixaBank and Bankia have approved a merger that will create Spain's top domestic bank

--The deal will see CaixaBank taking over its smaller rival, whose shareholders will receive 0.68 shares in Caixa for each Bankia share they own

--Shareholders should vote on the deal in November, with closing expected in the first quarter of next year

The boards of CaixaBank SA and Bankia SA have approved a merger that will create the largest Spanish domestic bank and suggests that a long-expected consolidation in the European banking sector could be gathering steam.

The deal will see CaixaBank taking over its smaller rival Bankia. The target's shareholders will get 0.68 shares in Caixa for each Bankia share they own, for an overall value of 4.3 billion euros ($5.10 billion), the lenders said Friday. This represents a premium of 20% based on the share price on Sept. 3.

The deal comes as Spanish banks, like their peers in the region, face the impact of the coronavirus pandemic, which has obliged lenders to set aside billions of dollars ahead of an expected wave of loan losses. This has compounded the effects of years of low interest rates eating away at core profit margins.

The tie-up could be a sign that consolidation is kicking off in the overcrowded banking landscape. In July, Italian bank Intesa Sanpaolo SpA secured investor support to take over Unione di Banche Italiane SpA. The merger will create Italy's largest bank by assets and the eurozone's second-biggest by market capitalization.

The merger between CaixaBank and Bankia creates Spain's top domestic bank, with assets of more than EUR660 billion and market value of almost EUR16.8 billion, based on Thursday's share prices.

The combined entity, which will keep the CaixaBank brand, will be the country's third-largest bank by assets, behind Banco Santander SA--one of the largest banks in the eurozone--and Banco Bilbao Vizcaya Argentaria SA. Both these banks have large international operations. In the Spanish market, the new entity will be the top bank by loans, assets and deposits.

Bankia chairman Jose Ignacio Goirigolzarri will be the executive chairman of the new entity, while Caixa Chief Executive Gonzalo Gortazar will keep his position. The 15-member board will have a third of directors coming from Bankia, with the remaining coming from the acquirer.

The banks target cost synergies of roughly EUR770 million a year, while also expecting to generate new annual revenue of EUR290 million. Caixa's earnings per share is expected to increase by 28% compared with market expectations for 2022.

La Caixa Foundation will remain the key shareholder of the bank, with roughly 30% of the combined entity. The Spanish state's stake in the new entity will be around 16%.

The deal is expected to close in the first quarter of next year, and shareholders of both banks will probably vote on the agreement in November.

"The merger will allow us to face the challenges of the next 10 years with greater scale, financial strength and profitability," Mr. Gortazar said.

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