Swiss investment bank UBS Group AG UBS and its beleaguered peer Credit Suisse AG CS have reached an agreement for the former to acquire the latter in a deal brokered by the Swiss government.
What Happened: UBS has agreed to pay 3 billion Swiss fancs ($3.25 billion) in stock to acquire Credit Suisse, the companies confirmed following widespread speculation.
Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares they hold, equating to a purchase price of 0.76 Swiss francs ($0.82) per share. This would still mark a discount of about 60% from Credit Suisse's closing price on Friday.
UBS said it would benefit from 25 billion Swiss francs worth of downside protection from the transaction to support marks, purchase price adjustments and restructuring costs, and additional 50% downside protection on non-core assets.
Both banks have unrestricted access to the Swiss National Bank's existing facilities, through which they can obtain liquidity from the apex bank in accordance with the guidelines on monetary policy instruments.
UBS Chairman Colm Kelleher and CEO Ralph Hamers will be the Group chairman and CEO, respectively, of the combined entity.
The transaction is not subject to shareholder approval.
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Merger Benefits, Synergies: The combination is expected to create a business with more than $5 trillion in total invested assets and sustainable value opportunities, UBS said. It sees the deal further strengthening its position as the leading Swiss-based global wealth manager with more than $3.4 trillion in invested assets on a combined basis, operating in the most attractive growth markets.
“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure," said UBS Chairman Colm Kelleher said.
The combined business is expected to generate an annual run-rate of cost reductions of more than $8 billion by 2027.
UBS expects the deal to be accretive to its earnings per share by 2027. It also said it remains capitalized well above its target of 13%.
SNB's Intervention: The merger talks apparently hit a rough patch amid a lack of agreement over the deal value and SNB's intervention may have helped clinch the deal.
"This takeover was made possible with the support of the Swiss federal government, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank," said the central bank.
Credit Suisse and UBS can obtain a liquidity assistance loan with privileged creditor status in bankruptcy for a total amount of up to 100 billion Swiss francs, it added. Additionally, Credit Suisse can avail of a loan worth 100 billion Swiss francs, backed by a federal default guarantee.
"The substantial provision of liquidity will ensure that both banks have access to the necessary liquidity. By providing substantial liquidity assistance, the SNB is fulfilling its mandate to contribute to the stability of the financial system, and it continues to work closely with the federal government and FINMA to this end," it added.
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