AIB and Irish Life & Permanent are among the top 10 takeover candidates in Europe's financial services industry, a new report by NCB Stockbrokers says.
AIB is vulnerable to takeover because it is one of the cheapest of the big European banks, NCB says. The broker puts a target share price of €24.10 on AIB, which was trading at €21.73 as the market closed yesterday. The broker forecasts that AIB's target share price, if possible merger and acquisition synergies are taken into account, could be as high as €27.40.
The question is "when not if" consolidation of the big Irish banks will happen, NCB says, and suggests the process could begin within 12 months. Spain's Santander, previously rumoured to be interested in AIB, is a likely contender for the bank, the report predicts.
AIB's competitors in Poland, including KBC, Commerzbank, ING, Fortis and BNP, are also likely to be attracted, it says.
Citigroup, which last Thursday signed a $3.1 billion deal to manage China's state-owned Guangdong Development Bank, appears to have ruled itself out of the rumoured running for AIB. Chuck Prince, the chief executive of America's largest bank, recently said Citigroup would not be making a "big" acquisition in Europe. Irish Life & Permanent, the purest play on domestic Ireland, could be a "medium-term takeover target", NCB predicts, because the banking and insurance group is left with few, if any, strategic options in the domestic banking sector following the takeover of National Irish Bank by Danske Bank.
Foreign institutions with Irish ambitions would be attracted by its multichannel distribution capability, NCB says. The broker sets a potential target price including merger and acquisition synergies of €24 on IL&P, which closed yesterday at €19.80.
The report suggests that Bank of Ireland is also an attractive target, but says a takeover of Anglo-Irish Bank is unlikely "given its premium valuation to most of the sector and its unique culture (which could prove difficult to manage in a larger organisation)".
With the EU Commission promoting the case for greater banking competition, NCB judges that the stage is set for further consolidation in Europe's banking sector. The broker expects more mid-sized transactions rather than mega-mergers.
