Mega Merger: and Credit Suisse Agree on a $2 Billion-Plus Merger- Thebanksathi
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UBS, the largest bank in Switzerland, has agreed to acquire Credit Suisse, the country’s second-largest lender, in a deal worth over $2 billion. Swiss authorities are rushing to announce the deal before Monday and are poised to change the country’s laws to bypass a shareholder vote. The all-share deal will be priced at a fraction of Credit Suisse’s closing price on Friday, all but wiping out the target’s shareholders.
UBS has increased its offer from a bid of SFr0.25 to over SFr0.50 a share in its own stock, which was rejected by the Credit Suisse board. The Swiss National Bank has agreed to offer a $100bn liquidity line to UBS as part of the deal, and UBS has agreed to a softening of a material adverse change clause that would void the deal if its credit default spreads jump. The US Federal Reserve has given its assent to the deal.
The plans to circumvent normal corporate governance rules by preventing a UBS shareholder vote have been criticized. Vincent Kaufmann, chief executive of Ethos Foundation, which represents Swiss pension funds that own between 3% and 5% of Credit Suisse and UBS, said that the move was poor corporate governance.
Both sides have been locked in discussions with regulators since Wednesday when Credit Suisse asked the SNB to provide it with an emergency SFr50bn ($54bn) credit line.
UBS will dramatically shrink Credit Suisse’s investment bank so that the combined entity will make up no more than a third of the merged group. Negotiators have given Credit Suisse the code name Cedar and UBS is referred to as Ulmus. UBS was seeking concessions and protections from the government, particularly from any pending legal cases and regulatory investigations into Credit Suisse that could result in fines or losses. However, it is unlikely it will get indemnity from any losses on assets.
The deal with UBS comes just months after the Saudi National Bank and the Qatar Investment Authority injected close to SFr3bn into Credit Suisse as part of an SFr4bn capital raise. They are the bank’s two largest shareholders and jointly own 17% of the stock.