30th Jan 2007 18:21
Bank Pekao SA30 January 2007 UNOFFICIAL TRANSLATION Report 35/2007: The report of Bank Polska Kasa Opieki S.A.'s Management Boardprepared on a basis of Art. 536 (S) 1 of the Code of Commercial Companies The Management Board of Bank Polska Kasa Opieki S.A. ("Bank") discloses awritten report of the Bank's Management Board prepared on a basis of Art. 536(S) 1 of the Code of Commercial Companies, justifying the de-merger of Bank BPHS.A., adopted on January 29, 2007. Legal basis: (S) 21 Sec. 2 Item 2 in conjunction with (S) 5 Sec. 1 Item 15 ofthe Finance Minister's Ordinance on Current and Periodic Information Provided bySecurities Issuers of 19 October 2005 (Journal of Laws No. 209, Item 1744). Report of the Management Board of Bank Polska Kasa Opieki S.A. justifying the spin-off of Bank BPH S.A. by transferring part of Bank BPH S.A.'s property, constituting an organized part of its enterprise, to Pekao S.A., pursuant to Art. 536 (S) 1 of the Code of Commercial Companies. I. Introduction Integrating the member entities of one group which conduct identical business isjustified by commercial benefits of stakeholders resulting from the economies ofscale, connected with the increased revenues and optimizing costs, while takinginto account synergies of the integrated business and strengthening of a marketposition of the entity created in a such manner. Bank Polska Kasa Opieki S.A. ("Bank Pekao S.A.") and Bank BPH S.A. (the "Banks")are today members of one capital group: UniCredit Banking Group. The presentsituation is a result of UniCredito Italiano S.p.A.'s ("UCI") acquisition of amajority stake of shares in Bayerische Hypo- und Vereinsbank Aktiengeselschaft("HVB") being indirectly, through Bank Austria Creditanstalt Aktiengeselschaft("BACA"), a majority shareholder of BPH S.A. UCI is a strategic shareholder of Bank Pekao S.A., holding the shares carryingthe right to 52.77%1 of the total number of votes at Bank Pekao S.A.'s GeneralMeeting. On April 5, 2006 UCI obtained a permit from the Banking Supervision Commissionto exercise, directly or indirectly through BACA, the right to no less than 66%and no more than 75% of the votes at the General Meeting of Bank BPH S.A.Presently, as a result of UCI acquiring shares from BACA in Bank BPH S.A., UCIdirectly has the right to exercise 71.03% of the votes at Bank BPH S.A.'sGeneral Meeting. A key assumption of the UniCredit Banking Group's strategy in Poland is toestablish, on a platform comprised of the two Banks operating inhere, anorganization characterized by outstanding sustained earnings and profitabilitygrowth that will become a leading financial institution in the Central andEastern European region, and one of UniCredit Banking Group's two majorinstitutions operating in this region. Integration of Bank Pekao S.A. with Bank BPH S.A. by the way of de-merging BankBPH S.A. is consistent with the provisions of the Agreement concluded on April19, 2006 by and between the Ministry of State Treasury of the Republic of Polandand UCI concerning integration of the Banks ("MST Agreement"). The MST Agreementsets forth in detail two potential scenarios of integrating UniCredit BankingGroup's banking activities in Poland. According to the MST Agreement, in the first place the Banks integration is tobe carried out through a demerger of Bank BPH S.A. by way of spinning off partof its property to Bank Pekao S.A., assuming that provisions allowing banksdemerger would come into force. If by October 19, 2006 the laws prevailingpossibility of bank de-merger would have not come into force, the integrationwas to take place by way of merging Bank BPH S.A. and Bank Pekao S.A. The MST Agreement also set forth the principles of selecting a third party whichwould ultimately acquire, depending on the implemented integration scenario: - part of the enterprise created as a result of merging Bank Pekao S.A. withBank BPH S.A.; or - the shares in Bank BPH S.A. held by UCI, after Bank BPH S.A. has beende-merged by spinning off part of its property to Bank Pekao S.A. On October 19, 2006 the Banking Law Act of August 29, 1997 (Journal of Laws of2002 No. 72, item 665, as amended, the "Banking Law") was amended in a mannerwhich made it possible to de-merge a bank existing in the form of a joint-stockcompany. In effect, as per the MST Agreement, the Banks shall be integrated byway of de-merging BPH S.A. by way of spin-off. II. Legal basis The Banks are to be integrated pursuant to Art. 529 (S) 1 item 4 of the Code ofCommercial Companies of September 15, 2000 (Journal of Laws No. 94, item 1037 asamended, the "CCC") in conjunction with Art. 124 c section 1 of the Banking Law,by transferring part of Bank BPH S.A.'s property, in a form of an organized partof its enterprise (the divided company) to Bank Pekao S.A. (the bidding company)in consideration for Bank Pekao S.A.'s shares issued to Bank BPH S.A.'sshareholders (the "Spin-off"). The Management Boards of both Banks expressed their intention to integrate BankPekao S.A. with Bank BPH S.A., by way of spinning off a part of Bank BPH S.A.'sassets in the form of an organized part of enterprise to Bank Pekao S.A., in theresolutions adopted on November 12, 2006. The Spin-off Plan of Bank BPH S.A. (the "Spin-off Plan") was adopted byresolutions of Bank Pekao S.A.'s Management Board and Bank BPH S.A.'s ManagementBoard, on, respectively, November 14 and 15, 2006. After, as required by the Banks' Charters, the Supervisory Boards' accepted onNovember 15, 2006, the intended integration of the Banks, to be effected by wayof Spin-off and the Spin-off Plan, on November 15, 2006 the Management Boards ofthe Banks signed the Spin-off Plan. The Spin-off Plan was published in Monitor S(1)dowy i Gospodarczy No. 239 ofDecember 8, 2006, under item 15136. III. Economic rationale. Goals achieved through the Spin-off Integration through the Spin-off will yield benefits to both of the Banks, theirclients and shareholders. As a result of transaction, Bank Pekao S.A. will be able to occupy the leadingposition at the Polish banking market, which will leverage, among others, on: 1) retail banking, in the scope of which the leading bank for Polishfamilies will be created, offering highest level of services and utilizing thebest practices of the Banks, 2) SME, VIP, Private, brokerage services, in the scope of which the marketleader offering full range of credit products, service of advisors and a modernmethods of credit risk assessment, will be created, 3) corporate banking, satisfying all the needs of business clients throughthe designated client's advisors, supported by the product specialists. As a consequence, Bank Pekao S.A. and its customers will enjoy a broad range of scale effectsresulting from the Spin-off. In particular, the following long-term objectivesshall be achieved: 1) providing all the customers of Bank Pekao S.A. with a convenient networkof branches and ATMs all over the country and with a wide, competitive offer offinancial products and services; 2) reaching, by supporting management systems based on best practices, thehighest quality of risk management, planning and performance management; 3) winning the leading market position in terms of cost management,leveraging on the scale effect and purchase techniques based on best practices; 4) winning the position of the preferred employer among Poland's financialinstitutions with ability to attract and retain the most talented employees andcontribution to the development of banking staff's skills in Poland. Simultaneously, BPH will remain on the Polish banking market, as an independententity having large growth potential amongst 10 leading banks in Poland, having: 1) the capabilities to carry on a stable and competitive banking business in acountrywide network of 200 outlets equipped with the required infrastructure andsupport of Head Office; 2) a well-known and well-established brand; 3) qualified and experienced staff; 4) an efficient organization; 5) the ability to continue operations with the existing BPH's product offering; 6) the platform for development of corporate banking; 7) strong position at the market of investment funds. The integration of the Banks through the Spin-off is additionally justified byshareholders' interests. Bank BPH S.A.'s current shareholders will benefit frombecoming shareholders of Bank Pekao S.A. while retaining their Bank BPH S.A.shares, which should enable them to participate in the growing value of bothBanks in the future. The Management Board of Bank Pekao S.A. believes that the integration of theBanks through the Spin-off will strengthen the investors belief inattractiveness and profitability of Bank Pekao S.A.'s shares, due to: 1) strong fundamentals and strategic positioning of Bank Pekao S.A.,including significant presence in attractive segments of the market, sustainablerevenues drivers and a cost efficient organization model; 2) attractive increase of Bank Pekao S.A. value due to increase in the years2006-2010 of CAGR proceeds by 7%, CAGR credits by 11-13% and CAGR deposits by5-7% and cost savings resulting from synergy (approx. 240 million gross savings,which will be gained in 2009); 3) increased liquidity of new shares resulting form the increase of shares'volume at the stock exchange trading; 4) confirmation of the policy of active communication with the investorsconnected with the advantageous rules of Bank Pekao S.A. policy in the scope ofdividend. IV. Division and valuation of assets. Justification of the Share AllocationRatio According to the Spin-off Plan, Bank Pekao S.A. will take-over an organized partof Bank BPH S.A.'s enterprise, except for certain separated elements of theproperty, including, without limitation, 200 of Bank BPH S.A.'s outlets,Building Society of Bank BPH S.A., the rights to use Bank BPH S.A.'s trademarks(except for those related to the business of HVB and BACA), the right to BankBPH S.A.'s corporate name, and the necessary support services andinfrastructure, such as IT services, back office services and other, based onwhich Bank BPH S.A. will continue its banking activity following the Spin-off,and Investment Fund Society BPH S.A.. The choice of the outlets that willremain in Bank BPH S.A. was conducted in compliance with the MST Agreement,pursuant to which the key factor considered in selecting these outlets was thedegree of overlap of Bank Pekao S.A.'s and Bank BPH S.A.'s networks in terms ofrange of distribution. The division of Bank BPH S.A.'s property agreed upon in the Spin-off Plan waseffected as at October 1, 2006. The Spin-off Plan also specifies the rulesgoverning changes of assets assigned to Bank Pekao S.A., that raised fromOctober 1, 2006 until the Bank BPH S.A. demerger registration day. The Spin-off Plan has been developed in such way as to: firstly, enable theBanks to identify, on the spin-off date, the property assigned to each of them(including the rights and obligations relating to their creditors) and secondly,enable Bank BPH S.A.'s creditors to identify their respective receivables asbeing assigned to either Bank Pekao S.A. or Bank BPH S.A. A detailed description of the property (assets and liabilities) of Bank BPH S.A.as well as the permits, concessions and relieves granted to Bank BPH S.A. andassigned to Bank Pekao S.A., is provided in Part II (Description of componentsof property, permits, concessions and relieves vested in Pekao) of the Spin-offPlan, and Tables 2-16 attached thereto. A pro-forma breakdown covering theassets and liabilities assigned to Bank Pekao S.A. under the Spin-off, made asat October 1, 2006, is attached to the Spin-off Plan as Table 1. All of Bank BPH S.A.'s property (including receivables and obligations) that hasnot been assigned to Bank Pekao S.A. in the Spin-off Plan will remain with BankBPH S.A. A valuation of Bank BPH S.A.'s property in the form of an organized part ofenterprise assigned to Bank Pekao S.A. pursuant to the Spin-off Plan wasconducted in October and November 2006. The valuation was made on the basis ofanalyses conducted with the use of various standard methodologies applied tovaluing financial institutions, such as: 1) Trading Market Multiples Analysis; 2) Regression Analysis; 3) Dividend Discount Model. The valuation was prepared on the basis of: 1) projections for 2006 through 2008 based on Bank BPH S.A.'s business plansadjusted to reflect in the cost structure of the part of the enterprisetransferred to Bank Pekao S.A. a simulation of the items characteristic foractivities of a standalone enterprise; 2) a pro-forma breakdown balance as at October 1, 2006; 3) publicly available historical information regarding Bank BPH S.A.; and 4) other publicly available information. The basic principles of the aforementioned methodologies are described in theSpin-off Plan. Based on the valuations of Bank Pekao S.A. and a part of Bank BPH S.A.'sproperty assigned to Bank Pekao S.A. according to the Spin-off Plan performedindependently by the two Banks and taking into consideration: - the median point of the overlapping segment of the valuations; and - the fair value of Bank Pekao S.A. and the part of Bank BPH S.A.'s propertyassigned to Bank Pekao S.A. the Share Allocation Ratio was established at 1:3.3. The established Share Allocation Ratio means that each shareholder of Bank BPHS.A., as a result of its possession of each Bank BPH S.A. share, shall receive3.3 shares in Bank Pekao S.A., while retaining its existing shareholding in BankBPH S.A. The Share Allocation Ratio provided in the Spin-off Plan was reviewed, accordingto the best market practices, by investment banks J.P. Morgan plc and MerrillLynch which confirmed its accuracy and reliability. Given that the Share Allocation Ratio was expressed as a non-integer number, theSpin-off Plan sets forth the terms for additional cash payments, since it is notpermitted to issue any fractional shares. A shareholder of Bank BPH S.A. will receive a cash payment, if the product ofthe number of the shares it holds and the Share Allocation Ratio is not aninteger. In such case, the number of the Spin-off Issue Shares (as defined insection VI. below) being issued to the shareholder will be determined byrounding the number of the Spin-off Issue Shares to which such shareholder isentitled down to the nearest integer. In consideration of the unissuedfractional Spin-off Issue Share, the shareholder will receive a cash paymentequivalent to the fractional value of one Spin-off Issue Share. For the purposes of cash payments, taking account of the interests of Bank BPHS.A.'s shareholders, the Spin-off Plan assumed that one Spin-off Issue Share isequal to an average stock market price of Bank Pekao S.A.'s shares over 30(thirty) consecutive trading days preceding the reference day; it beingunderstood that a stock market average price is an arithmetic mean of average,daily prices weighted by the volume of trading; the reference day is a day fixedin accordance with the relevant regulations of the National Depository forSecurities (Krajowy Depozyt Papierow Wartooeciowych S.A.), on which day theshares in Bank BPH S.A. recorded in securities accounts will entitle the ownersof the accounts to receive the Spin-off Issue Shares. The cash payments will be paid out of the supplementary capital of Bank PekaoS.A. V. Auditor's opinion According to Art. 312 in conjunction with Art. 532 (S)1 and Art. 536 (S)3 of theCCC, a report of the Management Board of Bank Pekao S.A. regarding the part ofthe Bank BPH S.A.'s property in the form of the organized part of an enterpriseassigned to Bank Pekao S.A. pursuant to the Spin-off Plan, prepared pursuant toArt. 311 of the CCC, has been audited in terms of its correctness and accuracyby a certified auditor appointed by the Registry Court. On January 12, 2007,Ms. Dorota Snarska-Kuman, certified auditor, issued an opinion determining thatthe value of Bank BPH S.A.'s property assigned to Bank Pekao S.A. established asdescribed above, is at least equal to the nominal value of the shares of BankPekao S.A. that will be allotted in consideration for that property to theshareholders of Bank BPH S.A. The certified auditor's opinion is available inthe registration files of Bank Pekao S.A. (KRS No.: 14843) at the District Courtfor the Capital City of Warsaw, XII Business Division of the National CourtRegister. VI. Shareholding structure of the Banks after the integration through theSpin-off In order to issue Bank BPH S.A.'s shareholders with the aggregate number of94,763,559 (ninety-four million, seven hundred and sixty-three thousand, fivehundred and fifty-nine) of Bank Pekao S.A. shares resulting from the ShareAllocation Ratio and the total number of already issued shares in Bank BPH S.A.,the share capital of Bank Pekao S.A. will be increased by PLN 94,763,559(ninety-four million, seven hundred and sixty-three thousand, five hundred andfifty-nine),by way of issuing "I" series ordinary bearer shares with a nominalvalue of PLN 1.00 (one) per share (the "Spin-off Issue Shares"). It is Bank Pekao S.A.'s intention to have the Spin-off Issue Shares introducedto trading on the regulated market in Poland conducted by the Warsaw StockExchange, according to the relevant rules and regulations governing securities'trading on the regulated market. The public offering of the Spin-off Issue Shares and the introduction to tradingon the regulated market organized by the Warsaw Stock Exchange will be conductedpursuant to an issued information document, executed, approved and made publicin accordance with the provisions of the Act on Public Offerings and the Termsand Conditions for Introducing Financial Instruments to an Organized TradingSystem, and on Public Companies of July 29, 2005 (Journal of Laws No. 184, Item1539, as amended; the "Act on Public Offerings"). The information document will provide, among other information, detailsregarding the terms of allocating the Spin-off Issue Shares and the cashpayments. In order to equalize the rights under the Spin-off Issue Shares and the rightsattached to the shares previously issued by Bank Pekao S.A., the Spin-off IssueShares will allow to participate in Bank Pekao S.A.'s profits from January 1,2008, assuming that the dividend date for the dividend paid for 2006 will beestablished by the Ordinary General Meeting of Bank Pekao S.A. approving the2006 financial statements, on a day preceding the spin-off date, being the daythe Bank Pekao S.A. share capital increase related to issuing the Spin-off IssueShares is registered. As a result of the Spin-off, the expected shareholding structure of Bank PekaoS.A. will be as presented below2:Shareholder ShareUniCredito Italiano S.p.A. 59.38%State Treasury of the Republic of Poland 3.96%Other shareholders 36.66% The data included in the table above that illustrate the percentage share in theshare capital of Bank Pekao S.A. is based on information disclosed by theshareholders pursuant to the provisions of the Act on Public Offerings. Following the Spin-off, the expected shareholding structure of Bank BPH S.A.'will be as presented below:Shareholder ShareUniCredito Italiano S.p.A. 71.03%State Treasury of the Republic of Poland 3.68%Other shareholders 25.29% As a result of the subsequent sale of all Bank BPH S.A. shares held by UCI tothe third party, the target ownership structure of Bank BPH S.A. will depend onthe total number of shares acquired by the third party after the public tender.The third party's share in the share capital of Bank BPH S.A. may be higher thanthe current UCI's share, depending on the number of minority shareholders whoelect to sell their shares to the third party during the public tender. -------------------------- 1 As at January 17, 2007. 2 Forecasted as at January 17, 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
BPKD.L