Danske Bank (DANSKE) M&A announcement summary

Deal rationale and strategic fit

• SEB chose to divest a profitable Danish life and pension business rather than fund substantial distribution investment, focusing on core customer segments and its bank transformation; it has no ambition to serve Denmark’s mass market.

• Danica’s Danish distribution network and existing life operation were considered a strong fit; the acquisition expands Danica’s pension presence and supports its Wealth Management strategy through cross-selling and digital offerings.

• SEB’s Danish corporate, financial institution and asset management businesses would remain strategic priorities.

Financial terms and conditions

• Sale covers 100% of SEB Administration A/S and SEB Pensionsforsikring A/S, including traditional and unit-linked life insurance, pension contracts and ~275 employees.

• Transaction value is DKK 6.5bn: DKK 5.0bn purchase price and DKK 1.5bn excess capital paid to SEB before closing; SEB had received DKK 1.1bn in earlier 2017 dividends and planned to prepay DKK 0.9bn of debt at closing.

• Valuation multiples were 2.3x price-to-book and 12x P/E; the buyer cited ~11x normalized P/E.

• Pro forma at 30 Sep 2017, SEB Pension contributed DKK 880m operating income, DKK 292m operating expenses and DKK 588m operating profit; credit losses would be unchanged.

• SEB’s pro forma CET1 ratio would rise ~60 bps; buyer-side CET1 impact was 40–60 bps at closing and under 10 bps with an optimal capital structure, with a 200% pro forma Solvency II ratio.

Synergies and expected cost savings

• Annual pre-tax merger benefits expected to be at least DKK 150m, phasing in during 2019E and reaching full-year impact in 2020E.

• Savings expected from IT integration, premises relocation and reduced operational overlaps, with further reductions through natural attrition.

• Integration costs expected at DKK 300–350m pre-tax, expensed in 2018 and 2019; the acquisition was expected to be earnings-neutral in 2018E.

• Scale of insurance liabilities expected to create capital synergies; the traditional portfolio includes a policyholder buffer of ~DKK 7bn.