OSLO: On 30 November 2020, the boards of SpareBank 1 BV and Sparebanken Telemark have signed a letter of intent with a view to a merger to form SpareBank 1 Sørøst-Norge.

The letter of intent, which sets out the main principles for a possible merger, was unanimously approved by the boards of both banks.

SpareBank 1 BV and Sparebanken Telemark are currently two strong and locally anchored savings banks with operations focused on Vestfold, Telemark and Nedre Buskerud.

The region has some 750,000 inhabitants and a well-diversified business base. Both banks have issued equity capital certificates listed on the Oslo Stock Exchange and both are members of the SpareBank 1 alliance.

The banks are located in attractive market areas that border on each other, and have together identified a commercial basis for forming a larger and more powerful bank. A merger will, in particular, increase competitiveness in the corporate market, but also in the private market and in the capital market, as well as contributing to the development of the respective local communities.

The objectives of the merged bank are to:

• Be the market leader in its current market areas.
• Achieve profitable growth in the corporate market, as well as contributing to business development in the region.
• Be a customer-oriented bank with the best digital customer solutions, at the same time as providing personal and relevant customer advice.
• Achieve increased revenue through an expanded service offering and higher product sales.
• Be an attractive workplace with high employee satisfaction. The merger will contribute to more broadly based centres of expertise and provide greater opportunities for personal development and specialization for the employees.
• Achieve better terms in the capital market as a result of increased scale and improved profitability.

So far, the banks have identified NOK 75 – 120 million in annual synergies once fully phased in, evenly distributed between income and cost synergies. The banks expect these synergies, assuming the merger goes ahead, to be fully realized in 2024.

Transaction costs and implementation costs to realize such synergies are expected to be incurred in 2021 – 2022 and are currently estimated to a total of NOK 110 – 130 million.

The exchange ratio will first be determined at the time of conclusion of any final merger agreement.

Discussion of the exchange terms shall be based on, among other things, financial and legal due diligence, book and value-adjusted equity, the banks’ capitalization, profitability and market pricing, as well as the merger being one of equals.

SpareBank 1 Sørøst-Norge will target an annual return on equity of 11.0 per cent. The bank will have a CET1 capital ratio of at least 17.0 per cent by the end of 2022, based on current capital adequacy rules. It is envisaged that the annual dividend would be approximately 50 per cent of the annual result.

In the interests of equal treatment of the capital classes and to counteract dilution of the equity capital certificate ratio, a corresponding distribution rate is planned for charitable purposes.

To preserve the interests of the local communities that have built up the primary capital in the two savings banks, SpareBank 1 Stiftelsen BV and Sparebankstiftelsen Telemark – Grenland respectively will be allotted equity capital certificates in the merged bank by converting parts of the two respective banks’ primary capital into equity certificate capital, with the equity capital certificates issued being transferred to these foundations.

According to the letter of intent, the merged bank shall have a maximum equity capital certificate ratio of 60 per cent after conversion.

The savings bank foundations are important supporters of their communities and ambassadors for the banks. The return on the equity capital certificates allotted to the foundations will form the basis for charitable gifts in the two banks’ original business areas. The foundations will continue the savings bank traditions with contributions and commitment to their local communities.