Oriental Financial (OFG) to Acquire Puerto Rician Operations of Banco Bilbao (BBVA) for $500M Cash

June 28, 2012 7:46 AM EDT
Oriental Financial Group Inc. (NYSE: OFG) and Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) today announced the signing of a definitive agreement for Oriental to acquire BBVA’s Puerto Rico operations for $500 million in cash, approximately a 3% premium to tangible book value. Closing of the transaction, which is subject to customary regulatory approvals, is targeted for before year end 2012.

In connection with the acquisition, Oriental announced that it has raised, in a private placement with institutional investors, $84 million of 8.75% non-cumulative convertible perpetual preferred stock, with a conversion price of $11.77, as a first step in raising an estimated $150 million in Tier 1 capital. Oriental intends to use its own excess capital to fund the balance of the purchase price.

Upon consummation of the acquisition, Oriental will be the second largest bank in Puerto Rico in terms of branches and core deposit funding, and the third largest in terms of assets. The resulting loan portfolio will be approximately a third each in commercial loans, residential mortgages, and consumer loans and leases, while the resulting securities portfolio will represent less than 40% of total earning assets.

As of March 31, 2012, BBVA PR had approximately $5.2 billion in assets, $3.7 billion in loans, $3.3 billion in deposits, 36 branches, and approximately 950 employees, which would add to Oriental’s $6.5 billion in assets, $1.7 billion in loans, $2.3 billion in deposits, 28 branches and approximately 720 employees, also as of March 31, 2012. BBVA PR has strong franchises in commercial and corporate banking, auto lending, retail banking, residential mortgage lending, insurance and wealth management.

The financial impact of the transaction is expected to be decidedly positive for Oriental. Based on current estimates, the acquisition (including the related capital raise described below) would be approximately 35% accretive to earnings per share in 2013 on a pro forma basis and approximately 52% in 2014. The projected annual cost savings are expected to be about 20% of BBVA PR’s non-interest expenses, approximately half of which are expected to be realized in 2013. Oriental expects to incur certain one-time restructuring charges of approximately $40 million in 2013 in connection with the transaction. While tangible book value per share is expected to be diluted approximately 23% at the close, it is anticipated to be earned back in less than two years, based on the combined company’s earnings.

Oriental has developed a financing plan designed to minimize shareholder dilution and maximize EPS accretion. The Company plans to finance the transaction through (i) $350 million of cash on the balance sheet, (ii) the previously mentioned private placement of $84 million in non-cumulative convertible perpetual preferred stock that is expected to close on July 3, 2012, subject only to customary closing conditions, and (iii) approximately $65-$70 million currently expected to be raised in approximately equal amounts of non-convertible perpetual preferred and common equity.

In addition, to reduce capital requirements and further strategic goals, Oriental plans to delever, at or prior to closing, approximately $1.3 billion of its investment securities portfolio and approximately $450 million of the BBVA PR investment securities portfolio, including the settlement of the related repurchase agreement funding at both Oriental and BBVA PR.

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