Abu Dhabi banks ADCB, UNB and Al Hilal to merge creating UAE’s third largest lender

UAE lenders Abu Dhabi Commercial Bank (ADCB) and Union National Bank (UNB) have confirmed plans to merge and together acquire Al Hilal Bank to create the country’s third largest lender.

The new banking group will carry the ADCB identity and will continue to have institutional backing from its biggest stakeholder – the Abu Dhabi government, a statement said.

Al Hilal Bank will retain its existing name and brand and operate as a separate Islamic banking entity within the group.

Following the merger, ADCB will become the fifth largest bank in the GCC region, with assets of Dhs420bn ($114bn). It is expected to have around one million customers.

The merger, first announced in September, has been recommended unanimously to shareholders by the boards of ADCB and UNB. It is subject to regulatory and shareholder approvals – which will be sought in the coming weeks.

ADCB chairman Eissa Mohamed Al Suwaidi will take over as the chairman of the new banking group while Mohamed Bin Dhaen Al Hamli will be the vice chairman.

The group CEO of ADCB Ala’a Eraiqat will also continue as the its CEO.

The merger is aimed at growing the bank’s consumer and wholesale businesses in both conventional and Islamic banking and its increase market share, the statement said.

It is also expected to deliver cost benefits of approximately Dhs615m ($167m) annually on a run rate basis, which equates to around 13 per cent of the three banks’ combined cost base. These benefits are expected to be realised over two to three years.

According to reports, up to 1,000 jobs could be cut as part of the merger.

Read: Proposed bank merger in Abu Dhabi could lead to 1,000 job cuts – report

TRANSACTION STRUCTURE

The proposed transaction between ADCB and UNB will be executed through a statutory merger.

ADCB will issue 0.5966 ADCB shares for every UNB share, corresponding to a total of 1,641,546,697 new shares issued to UNB shareholders. On the effective date of the merger, UNB shares will be delisted from the Abu Dhabi Securities Exchange. The combined bank will retain ADCB’s legal registrations.

Al Hilal Bank will be acquired by the combined ADCB/UNB entity, for approximately Dhs1bn, by issuing a mandatory convertible note for up to 117,647,058 post-merger ADCB shares to ADIC after the completion of the statutory merger.

The three banks will continue to operate independently until the combination becomes effective, which is expected within the first half of 2019.

Following the completion of the merger, the Abu Dhabi government, through the Abu Dhabi Investment Council, will own 60.2 per cent of the combined bank. Other ADCB shareholders will own 28 per cent and other UNB shareholders will own 11.8 per cent of the combined bank.

Al Suwaidi said: “This is a very exciting transaction that will create a larger, preeminent and resilient banking group. It is a landmark
deal for the UAE that will contribute significantly to our national ambitions.

“The enlarged ADCB will have the scale and expertise to play a central role in the next stage of the UAE’s economic development.

Ala’a Eraiqat added: “The ADCB Group will focus its customer-centric growth strategy on its home market of the UAE, with a selective international presence. The bank will take advantage of scale and efficiency to invest further in developing its people, products, services and channels, with the objective of gaining greater market share.”

Barclays, Allen & Overy LLP, and KPMG are advising ADCB, while J.P. Morgan, Clifford Chance LLP, and EY are acting as the advisors to UNB. Freshfields Bruckhaus Deringer and Deloitte are acting as the legal and transaction advisors to Al Hilal Bank.

CONSOLIDATION

The latest merger follows the combination of National Bank of Abu Dhabi and First Gulf Bank in 2017 to create a lender with $175bn of assets.

The UAE Banks Federation said in an annual report released in late August that the sector was still ripe for consolidation given the large number of lenders serving the country’s 9.54-million population and the pursuit of cost savings.

There were 22 national banks and 27 foreign banks operating in the UAE as of December 2017, according to the federation’s report.

Read: UAE banks cut more than 600 workers, 75 branches in 2017

Last year, reports also emerged that that the Sharjah government was weighing a merger between United Arab Bank (UAB), Invest Bank and the Bank of Sharjah to create a lender with about Dhs66.2bn ($18.0bn) in assets.

However, the banks later denied the plans.

Read: Sharjah’s UAB, Invest Bank deny reports of three-way merger with Bank of Sharjah