WOOD Flash – Bank Pekao: to take over PZU, potentially

PZU and Bank Pekao have signed a memorandum of understanding (MoU), establishing a joint project for the preparation, conditional on the relevant legislative amendments, of a transaction comprising: i) the demerger of PZU, by way of a spin-off of the operating business to a fully-owned subsidiary of PZU, resulting in PZU becoming a holding company; and then ii) a merger of PZU (HoldCo), as the acquired company, with Bank Pekao as the acquiring company. Based on the MoU, it is the intention of PZU and Bank Pekao to execute the potential merger, after the spinning off of the operating business of PZU, by 30 June 2026. We need more time to fully digest the financial maths of the potential scenarios, and we note that the announcement today (2 June) does not address nor suggest one chosen path, as it is still too early. We try to highlight the potential scenarios in this flash. It is too early for us to decide whether this transaction is positive or negative for Bank Pekao. Indeed, there is a massive capital increase ahead of the bank but, at the same time, we see it as positive from a capital power perspective, once concluded. However, considering so many questions and options, with no answers currently, we treat these unanswered and undecided optionalities as risks for Bank Pekao’s equity story. The unknowns, until they are clarified, may weigh negatively on Bank Pekao’s share price performance. However, the final impact will depend on the final shape of the capital increase (cash or share swap), as well as the parity of the valuations between the entities, the final structure of the transaction, etc. We believe that PZU’s shareholders should be interested in voting for the takeover as, in an alternative scenario, the surplus capital of the insurer will be reduced. However, this statement is also subject to relative valuations during the merger process.