By Terje Solsvik and Gwladys Fouche
OSLO (Reuters) – Norway's largest bank DNB launched an all-cash offer on Thursday to buy smaller rival Sbanken for 11.1 billion Norwegian crowns ($1.3 billion) in a bid supported by both companies.
Sbanken's shares surged 29.5% to a record high of 103.60 crowns by 0745 GMT, almost in line with the 103.85 crowns per share offered by DNB.
"The board of directors is of the opinion that the offer reflects the strong financial and strategic value of the Sbanken group and implies an attractive valuation for shareholders," said Sbanken Chairman Niklas Midby.
"We believe that Sbanken and DNB as a combined entity will be strongly positioned to compete with the global technology leaders."
The takeover, if successful, would increase DNB's share of the Norwegian mortgage market to an estimated 27% from about 24%, DNB said.
"In addition, Sbanken will complement DNB within the savings area, which is a growth area for DNB, and add highly skilled technology resources," it said.
DNB's shares rose 1.3% in early trade to 183 crowns.
The transaction will lead to cost cuts at both banks and is expected to have a positive impact on DNB's earnings per share and return on equity.
"The deal is relatively small … but in our view makes sense from a strategic point of view as it further strengthens DNB's footprint in Norway, one of the more attractive retail banking markets in the Nordics," Credit Suisse said in a research note.
Shareholders representing about 29% of Sbanken's capital so far have agreed to the offer "on certain terms", including biggest stakeholder Altor, with 25% of the shares, the banks said. DNB already already holds a 1% stake.
Sbanken was established in 2000 as the first pure-play digital bank in Norway and was listed on the Oslo bourse in 2015.
DNB was advised by its in-house broker DNB Markets while Sbanken was advised by Arctic Securities.
Completion of a takeover, which requires approval from Norwegian financial and competition regulators, is expected in the third quarter of 2021, DNB said.
The Norwegian competition authority said it would hold a meeting with DNB and Sbanken next week about the proposed transaction.
"We will make an assessment and check whether it hurts competition," Gjermund Nese, head of the watchdog's finance and communication section, told Reuters.
Once the banks formally notify the watchdog, the latter has 25 working days to make its first assessment.
The Financial Supervisory Authority of Norway was not immediately available for comment.
($1 = 8.3984 Norwegian crowns)
(Additional reporting by Jagoda Darlak in Gdansk; Editing by Toby Chopra and David Goodman)