Despite some delay from the original schedule, the transaction whereby the group of international investors led by Ripplewood Advisors acquired the 75% minus one share in Citadele banka AS from the Latvian Government closed earlier this week.

Now it is the time to do the final tally. According to the audited consolidated financial statements (the employees of our publisher provide services to KPMG Baltics SIA who is the auditor of Citadele), the Bank’s assets stood at EUR 2,855 million, and the shareholders’ equity amounted to EUR 176.7 million as at the end of 2014. Thus, the final purchase price paid, which apparently was EUR 74.7 million, implicitly values the 100% of shares in Citadele at EUR 99.6 million, resulting in a price-to-book ratio of 0.56x.

We have written extensively on the sale of Citadele already (here, here, and here in Latvian as well), advocating that the price, which is arrived at after an open and competitive bidding process, actually is the price that the market is prepared to pay for this particular asset at this specific point in time, whether we like it or not. Without restarting this discussion once again, there are just a few points to emphasize.

Obviously, the public knowledge about the Government’s obligation to exit by the end of 2014 did not help its bargaining position, and, hence, its ability to achieve a better price. On the other hand, one has to admit that there were no buyers whatsoever interested in acquiring Citadele during the earlier marketing rounds when the time pressure was not that pronounced.

Without having seen the sales and purchase agreement and operating with only the limited information that has been made public, it is difficult to give a comprehensive assessment. The actual price the acquirer is prepared to pay is affected by a range of factors, including the quality of representations and warranties the seller is willing to provide, any additional non-monetary obligations the buyer is required to undertake (for instance, the restriction to sell any shares over the next 2-year period, a clause on which apparently the Government had strongly insisted), additional investment needs to refinance the subordinated loan and possibly to increase the share capital, and similar.

The above notwithstanding, this sale has become a semicolon in the saga related to the bailout of Parex banka AS in late 2008. Now the Government has only Reverta AS, the “bad bank” established on the ruins of Parex, left to be dealt with to close the story completely. Meanwhile, the banking sector will now have to learn to deal with a competitor who has an overwhelmingly strong incentive to grow and the deep pockets behind it to support this ambition. We should probably get prepared for quite exciting developments in the financial services marketplace over the next few years.

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