Intesa-Ukrsotsbank: Price up 6.9%, New Offer to Minorities, But Only If US Lawsuit Resolved

Banca Intesa announced today in a press release that it has renegotiated the terms of its purchase agreement for a controlling stake in Ukrsotsbank. According to the statement, the new agreement values Ukrsotsbank at $1.4 bn and Banca Intesa will acquire an 88.55% stake, which implies a purchase price of just under $1.24 bn. The valuation is up 6.9% from the previous agreement announced in February, when Intesa agreed to pay $1.16 bn to acquire an 88.1% stake, valuing Ukrsotsbank at $1.31 bn. Intesa said it was also prepared to buy up to 100% of Ukrsotsbank’s shares and would extend a “put” option to minority shareholders, which the statement implied would be based on the $1.4 bn valuation, or $0.38/share. Ukrsotsbank shares currently trade at about $0.30. However, Intesa said completion of the transaction depended on a “definitive” resolution of a lawsuit in the US in which Ukrsotsbank was involved in, in Ukrsotsbank’s favor. If the acquisition is not completed by March 31 2007, Intesa and Ukrsotsbank’s controlling shareholder (Viktor Pinchuk) have the right to cancel the agreement or renegotiate it. The announcement comes after Intesa’s original acquisition agreement was held up by protests from minority shareholders, including the Privat business group. Intesa did not describe the lawsuit that it mentioned, but we believe the one referred to is a lawsuit brought early this year by the Privat group against Pinchuk and his various partners and companies. The main subject of that lawsuit is Nikopol Ferroalloy, one of Pinchuk’s metallurgy plants. Since the Privat group owns at least a small stake in Ukrsotsbank, we believe Privat is likely to find a way to withdraw its claim against Ukrsotsbank in order to cash in on Intesa’s offer to minorities. However, there is a risk that the suit could drag on and delay or even ruin the deal.