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Zurich's EFG International to purchase BSI for $1.34 bln

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February 24
5:21 AM 2016

The EFG International, a Zurich-based private bank, announced its intention to purchase the BSI Ltd in a deal worth about $1.34 billion. The deal consideration includes a cash amount of CHF 975 million and share issue of 52.6 million to BTG Pactual. As part of the deal, BTG Pactual will own nearly 20% of stake in EFG and will also appoint a representative to EFG's board.

The bank noted that the transaction amount will be adjusted in the future depending upon the total fresh capital between November 30, 2015, and on the closing of the purchase. The bank compares the transaction price with BSI's expected tangible book value on IFRS basis of about CHF 1.43 billion on December 31, 2015. The transaction deal includes various benefits for EFG like indemnities, warranties and strong representations related with risks factors.

EFG's shareholder approval for the acquisition is planned for April 29, 2016. The bank plans to raise capital of CHF 500 million via rights offering and "Additional Tier 1 instruments" worth at CHF 250 million. EFG has pledged to spend a minimum of CHF 125 million from the rights offering. The commitment of ETG Group and BTG Pactual to subscribe more shares as an effort to offer deal-financing confidence will ultimately increase BTG's share in EFG to a peak of 30%.

The acquisition, which is subject to shareholders approval and other regulatory approvals, is expected to close during the final three-month period in 2016. The bank expects the purchase to be accretive to its EPS from the year 2018. Upon completion of the acquisition, a fresh management team will come into existence for the joint business. Moreover, BSI will remain as a subsidiary to EFG until the shifting of business to a common IT stage, which is expected to take place by the end of 2017.

This transaction comes following BTG Pactual's deal to acquire BSI in a stock and cash offer worth at CHF 1.25 billion. Both EFG and BTG have been involved in conferences for nearly a month over the purchase of BSI. Still, there are discussions going on with regard to the handling of fines from the current legal issues against BSI, as reported by Reuters.

However, BSI didn't comment on the capital laundering gossip associated with 1Malaysia Development Bhd. According to Pedro Lima, BTG's global leader of investor relations, the bank is yet to decide on the allocation of transaction money from EFG deal.

Financial Times quoted a researcher at Vontobel Andreas Venditti, who said that through this acquisition EFG has made a "bold strategic move" amid gloomy profit conditions. He continued that the bank is attempting to enhance its business portfolio by acquiring BSI. The shares of EFG dropped 9% during Monday trading session owing to the transaction price, which the analysts feel to be high for BSI.

However, this transaction will make EFG a leader in the private banking sector. The combined business will also boost shareholders' interest in the long run.

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