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// French Bank to Exercise Option on Purchase of Rosbank Shares Eighteen Months Early
July 02, 2007 - Kommersant by Yulia Chaikina -
On Friday the board of directors of the French bank Societe Generale (SG) decided to exercise an option to purchase 30% plus two shares in Rosbank. After that acquisition, which will be the most expensive deal in the history of the Russian banking industry in terms of capital to purchase price ratios, SG will own 50% plus one share in one of Russia's largest banks. News of the deal was confirmed for Kommersant by Rosbank spokesman Valentin Shapka: "Rosbank chairman Alexander Popov knows about this information. The French bank has decided to file an application with the Bank of Russia and the Federal Antimonopoly Service concerning the acquisition of another 30% plus two shares of our bank." The Societe Generale yesterday declined to comment, but an official announcement from the French bank is expected today. The Societe Generale currently own 20% minus one share in Rosbank. In June 2006, SG paid $317 million for a 10% share in Rosbank, and in September of that same year, SG purchased an additional 10% minus one share in the Russian bank for the same price (both deals had a coefficient of 4.5 on the bank's own capital). At the time of the second acquisition, Interros offered SG a call option on the purchase of 30% plus two shares in Rosbank for $1.7 billion before the end of 2008. Exercising this option will give the French bank a controlling stake in Rosbank – 50% plus one share – for a total cost of $2.33 billion. The French banking giant Societe Generale serves more than 22 million customers around the world and earned $5.2 billion in 2006. SG controls $422 billion in assets, employs 120,000 people, and has branches in 80 different countries. The bank has a presence in Russia through its subsidiaries Societe Generale Vostok, the mortgage lender Deltakredit, and the company Rusfinance. According to data from April 1, 2007, Rosbank is number ten in Russia in net assets (256.7 billion rubles) and in thirteenth place in shareholders' equity (24.9 billion rubles). Until now, the bank has been largely controlled by the holding company Interros, which owns a 69.9% stake. Besides the 20% currently owned by SG, the rest of the shares in the bank are distributed among the bank's top executives. Rosbank, whose network of 600 service centers includes 68 affiliates and 58 Moscow branches, is the largest bank in Russia after Sberbank. According to the conditions of the call option, the coefficient of the ratio of the bank's capital to the price of 30% of its shares is 5.9. Taking into account the previous deals between Rosbank and SG, the French group is buying a controlling packet of shares in the Russian bank in a deal that has a coefficient of 4.8. "No one has ever spent that much on a Russian bank," said Interfax general director Mikhail Matovnikov. According to the terms of last year's deal, SG has through 2008 to exercise the call option. Market analysts believe that the French group decided to go ahead with the acquisition eighteen months ahead of the deadline under pressure from both the evolution of the Russian banking sector and Rosbank's own performance indicators. "An infusion of money from the French shareholder will allow Rosbank to speed up the development of [its] business," said Rusrating analyst Yulia Arkhipova. When SG bought a second 10% stake in Rosbank last fall, SG representatives mentioned the possibility of an exchange of shares between SG and Rosbank. At the time Interros managing director Andrei Bugrov said, "that will happen when SG decides to exercise its option for a controlling stake in Rosbank." Now many in the market expect that the almost 40% of shares in Rosbank that Interros still owns will be exchanged for shares in SG once the French bank's acquisition of the last shares that it needs for a controlling stake in Rosbank is complete.