Poland's PZU, Pekao plan potential $27 billion tie-up

(Reuters) -Polish state-controlled insurer PZU plans to merge with lender Pekao, the companies said on Monday, in a potential deal that would create a financial group with a combined market value of more than 100 billion zlotys ($26.9 billion).

The potential tie-up, which would rank as the biggest financial M&A transaction in Europe for at least 12 months according to LSEG data, is the latest to be announced in Poland, where expectations for consolidation in the banking sector have grown.

Austria's Erste Group Bank last month agreed to buy the Polish arm of Spain's Santander for 6.8 billion euros ($7.8 billion), while Citigroup's Polish unit said last week it had agreed to sell its consumer banking business in the country to Velobank.

PZU, the country's top insurer, and Pekao already have a relationship, with the former owning 20% of Poland's second-largest lender. The Polish government, which is the biggest shareholder in PZU, welcomed the potential deal.

"This is a gigantic opportunity for both companies, for the market and for Poland. An opportunity to produce a new, powerful national champion," Poland's Minister of State Assets Jakub Jaworowski said on Monday, adding that he would personally oversee the transaction.

Ahead of a potential transaction, PZU would be split into a holding company and a wholly-owned unit running its operational insurance activity, the companies said on Monday.

Thereafter, the holding company would be merged with Pekao, they added.

The announcement follows news that nationalist opposition candidate Karol Nawrocki had narrowly won Poland's presidential election on Sunday, a major blow to the centrist government's efforts to cement Warsaw's pro-European orientation.

Pekao and PZU aim to complete the possible deal by the end of June 2026, which they said could free up about 15 billion to 20 billion zlotys ($4 billion to $5.3 billion) of the group's capital surpluses.

The surplus would increase the dividend potential of the combined companies, they added.

The potential deal depends on a number of factors, including the entry into force of relevant legislative changes, as well as regulatory and shareholder approvals.

Both brands will maintain their "identity, distinctiveness and autonomy of activity" in their respective business areas, the companies said, but added the group would be led by a bank, not an insurer.

The companies also plan to develop an optimal strategy for Alior Bank, in which PZU group has a 32% stake, they added.

($1 = 3.7460 zlotys)

($1 = 0.8751 euros)

(Reporting by Anna Pruchnicka in Gdansk, additional reporting by Tommy Wilkes, Anousha Sakoui and Rafal W. Nowak, editing by Milla Nissi-Prussak)