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BPI to acquire Lucio Tan's PNB in Ayala group's bid to topple Henry Sy's BDO from top spot

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MANILA - (UPDATE 4, 5:44 p.m.) The Ayala group and Lucio Tan on Wednesday secured board approvals to pursue a merger that would catapult Bank of the Philippine Islands to the top spot, dislodging Henry Sy's Banco de Oro Unibank as the country's biggest lender.

An industry source said Philippine National Bank majority owner Lucio Tan obtained board approval to pursue a share swap that would leave him owning up to 20 percent of BPI, making him its second biggest shareholder after the Ayala group.

The Ayala group owns 33 percent of BPI after the recent acquisition of DBS' stake in the Philippines' third largest lender.

The source said the share swap would involve BPI acquiring PNB shares for P95-96 a share, or approximately 1.8 times the latter’s book value of about P56 a share, thus allowing Tan to earn P26 billion.

In separate statements issued early today, BPI and PNB said their principals are in talks for the former's acquisition of the latter. BPI told the Philippine Stock Exchange that it is in talks with Tan's group and "will make the appropriate disclosure in accordance with the PSE disclosure rules."

Separately, PNB said it will make the disclosures within the day once it secures board approvals. The formal disclosures will be sent to regulators, in accordance with disclosure rules and procedures, the bank said.

In view of this development, the trading of the two banks' shares were halted at 9:19 am today. At the close of trading last Tuesday, BPI was worth P88.45 a share, up 3.2 percent from Monday. PNB closed Tuesday at P84.10 apiece, up 11.7 percent from the previous day.

PNB is poised to merge with Allied Banking Corp, another Tan-owned lender, creating the industry's fourth largest lender. In a subsequent disclosure to the PSE, PNB said it already secured the clearance from the Hong Kong Monetary Authority to acquire Allied Bank - Hong Kong, but was awaiting the same clearance from UK regulators and the Philippines' Securities and Exchange Commission.

A three-way merger among BPI, PNB and Allied Bank would make the surviving entity the country's biggest bank with combined assets of P1.201 trillion, trumping BDO's P1.150 trillion.

To date, BPI has assets worth P720.663 billion, while PNB and Allied Bank have assets of P304.317 billion and P176.697 billion, respectively.

Jose Vistan, head of research at AB Capital Securities Inc, said this may be BPI's strategy of climbing to the top of the food chain. BPI is ranked third after BDO and George Ty's Metropolitan Bank and Trust Co, which on Wednesday denied that it attempted to acquire PNB as reported in a newspaper.

"PNB provided an opportunity at a reasonable price," Vistan said, adding that the bank has been one of the cheapest among its peers. The analyst said the valuation was over P100 per share but "it seems like" the two parties have agreed at a discounted price.

It remains to be seen whether a BPI-PNB merger would catapult the Ayala lender to the top spot, Vistan said.

Bangko Sentral ng Pilipinas Deputy Governor Nestor A. Espenilla Jr. said it was still “too early to comment” on the three-way merger.

The BSP has been encouraging consolidation in the banking industry to prepare local lenders for the Asean Economic Community seen happening by 2020.

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