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Its Official: TBC Bank Agrees to Acquire 93.64% Stake in Bank Republic

TBC Bank agrees to acquire 93.64% stake in JSC Bank Republic for GEL 315 million (£103 million) and selected assets and liabilities of JSC Progress Bank, creating the largest Georgian bank by both loans and deposits.

TBC Bank Group PLC (TBC Bank) announces that, together with its subsidiary, JSC TBC Bank, it has entered into a definitive agreement with Societe Generale S.A. (“Societe Generale”) to acquire its 93.64% stake in its Georgian subsidiary, JSC Bank Republic (“Bank Republic”), one of the leading universal banks in Georgia, for GEL 315 million (the “Transaction”).

The Transaction represents a key milestone in the consolidation of the Georgian banking sector.  The acquisition of Bank Republic, one of the leading banks in Georgia with a Top-5 position across most major metrics and with a focus on the consumer and mortgage lending markets, is highly complementary to TBC’s existing operations and provides an opportunity for significant synergies.

Key Transaction Features

  • Acquisition of a large and financially sound institution with Bank Republic having maintained an RoAE of over 18% in each year since 2013 and exceeding 21% in 2015
  •  Creation of the largest bank in Georgia by both loans and deposits, with TBC Bank’s loan market share increasing by 7.3% to 35.7% and the deposit market share increasing by 5.3% to 34.5%
  • Reinforces TBC Bank’s position in all operating segments with special strengths in retail banking, including among affluent customers
  • Further strengthens TBC Bank with highly qualified staff, with deep product knowledge and established customer relationships
  • Transaction structure minimizes shareholder dilution with potential to increase the free float
  • The GEL 336 million valuation (approximately £110 million) for 100% of the equity capital of Bank Republic represents an estimated Price / Book Value multiple of approximately 1.1x at completion and a Price / Earnings 2015[1] multiple of 6.9x; subject to customary confirmatory due diligence
  • Once fully achieved, pre-tax cost synergies from the acquisition have been estimated at approximately GEL 21 million, being derived primarily from marketing, consulting costs, streamlining of other administrative expenses as well as from moderate branch network optimization

Integration costs are expected to be approximately GEL 23 million (approximately 114% of annual pre-tax synergies)

The capital impact of the acquisition has been estimated as approximately 2% driven primarily by the consolidation of Bank Republic’s risk weighted assets onto TBC Bank’s balance sheet

The pro forma capital position (based on TBC Bank’s Q3 2016 financials and including effect of the Transaction) of TBC Bank is expected to be approximately between 10-11% and will remain well above the regulatory minimum Tier 1 level of 8.5% as required by the National Bank of Georgia

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The Transaction

The valuation of Bank Republic is approximately GEL 336 million for 100% of its shareholders’ equity, thereby valuing Societe Generale’s 93.64% stake at GEL 315 million. The consideration ultimately payable may be subject to closing adjustments following confirmatory due diligence.

The consideration is 70% payable in cash from own funds and 30% in newly issued TBC Bank shares. As a result of the Transaction, Societe Generale will become a 5.4% shareholder in in TBC Bank with a holding period (lock-up) of 1 year, which can be waived by TBC Bank at its discretion. The parties have also agreed to explore future partnering opportunities within Georgia.

TBC Bank has already entered into preliminary negotiations to acquire the remaining 6.36% stake owned by the European Bank for Reconstruction and Development.

The Transaction is expected to close before the end of 2016, following the completion of confirmatory due diligence and the satisfaction of all relevant condition precedents.

J.P. Morgan is acting as exclusive financial adviser, and Baker & McKenzie LLP as international legal adviser, to TBC Bank in relation to this transaction.

Vakhtang Butskhrikidze, Chief Executive Officer of TBC Bank said today

“We believe that the acquisition of Bank Republic is a critical step in delivering on TBC Bank’s strategy and represents a major step forward in TBC Bank’s ambition to build the leading banking group in Georgia and the broader Caucasus region. Bank Republic is an excellent strategic fit for TBC Bank given its focus on the mortgage and consumer lending segments, complemented by an attractive product offering for large multinationals operating in Georgia.

The TBC Bank management team has extensive integration experience and expertise and we will ensure a smooth integration of the two businesses while remaining committed to delivering the highest level of service to customers of both institutions.

Finally, we very much look forward to welcoming the Bank Republic employees into TBC Bank and helping us successfully operate and serve the clients of the largest bank in Georgia. We share similar ambitions and together we are excited by the opportunity to grow and develop the combined entity.”

Antoine Gabizon, Chief Executive Officer of Bank Republic added

“TBC Bank’s consolidation of Bank Republic’s operations has strong industrial logic and will bring significant benefits in terms of market leadership and customer servicing. We are delighted to transact with such a motivated and professional management team and believe that we have selected the best partner for our subsidiary in Georgia.

We are looking forward to successful completion of the transaction and will closely collaborate to achieve smooth transition process.

Following the sale of Bank Republic, Societe Generale’s outlook for the Georgian banking sector remains strong, well run, well regulated and transparent, as also highlighted by its ongoing interest in TBC Bank Group Plc.”

Acquisition of selected assets and liabilities of JSC Progress Bank

TBC Bank also announces that it has reached an agreement to acquire selected assets and liabilities of JSC Progress Bank, a small local Georgian bank.  The acquisition consists of GEL 108 million of assets and GEL 108 million of liabilities post fair value adjustments.  The transaction is immaterial from a TBC Bank perspective as it accounts for only 1.6% of gross assets, excluding the impact of the Bank Republic acquisition.

The European Union Market Abuse Regulation EU 596/2014 requires TBC Bank to disclose that this announcement contains inside information, as defined in that Regulation.

Summary of the Transaction will be presented by:

Vakhtang Butskhrikidze, Chief Executive Officer

Giorgi Shagidze, Deputy CEO, Chief Financial Officer