Bahrain's AUB completes KFH due diligence for a potential merger

The bank says it has submitted the report to AUB's board for review

12/07/09 - Kuwait City, Kuwait - Kuwait Finance House (KFH) was established in the State of Kuwait in 1977, as the first bank operating in accordance with the Islamic Shari'a.  (Andrew Henderson/The National) *** Local Caption ***  ah_090712_Kuwait_Stock_0091.jpg

Bahrain’s Ahli United Bank (AUB) completed due diligence of Kuwait Finance House (KFH), a crucial step in the Kuwaiti lender’s bid to take over its Bahraini counterpart.

The Bahrain-headquartered Islamic lender received the reports from specialist advisers appointed to complete the due diligence on KFH, which were submitted to the AUB board for “review and evaluation”, the bank said in a statement to Borsa Kuwait, without specifying when the result of the board review is expected.

“AUB will provide additional disclosure on this matter,” it said.

KFH, the biggest Islamic lender in Kuwait, did not disclose what stage of the due diligence process it is in.

Both lenders started financial and legal due diligence on each other’s books earlier in the year when they appointed HSBC and Credit Suisse as financial advisers.

In January KFH received “tentative” approval from AUB on the share swap ratio to complete a potential takeover of the Bahraini lender. KFH's board also approved the exchange ratio of 2.326 shares of AUB for each share of KFH. A final decision to move ahead with the transaction was contingent on the outcome of the due diligence, approval by the general assemblies of both banks, the Central Bank of Kuwait, the Central Bank of Bahrain and other relevant regulatory bodies, KFH said at the time.

“The completion of the due diligence should be followed by the board of directors of both banks recommending the deal and the merger swap ratio agreed last January,” Egyptian investment bank EFG Hermes said in a note to investors on Sunday.

The swap ratio implies an acquisition price for AUB of 0.322 Kuwaiti dinars versus AUB’s current share price of Kuwaiti dinars 0.280, it noted.

KFH tried to acquire AUB in the past. The lenders signed a memorandum of understanding and a non-disclosure agreement to begin valuations and explore the possibility of unifying their businesses in July last year. The initial agreement came six months after KFH's talks with AUB stalled over a difference in valuation, according to Bloomberg.

Lenders in the Arabian Gulf are increasingly looking at mergers and acquisitions in a bid to gain scale and cope with tougher operating conditions against a weakening global economic backdrop. KFH’s bid to take over AUB follows several successful mergers in the region, including the three-way tie-up between Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank in the UAE.

Dubai Islamic Bank, the biggest Sharia-compliant lender in the country, is in the process of taking over its smaller rival Noor Bank, while National Commercial Bank in Saudi Arabia is pursuing a merger with its competitor Riyad Bank.

National Bank of Bahrain, a majority government-owned lender, is continuing discussions with Bahrain Islamic Bank for a potential offer for the Sharia-compliant lender as it looks to widen its client base and expand its reach into the Islamic banking market, it said in August.