AIB to buy $318 million stake in Bulgaria's BACB bank

DUBLIN (Reuters) - Allied Irish Banks (ALBK.I) (ALBK.L) said on Friday it had agreed to buy a 49.99 percent stake in specialist business lender Bulgarian-American Credit Bank (BACB) for 216 million euros ($318.3 million).

Ireland's biggest bank by market value said it was buying the stake for cash from BACB's BACB.BB majority shareholder the Bulgarian-American Enterprise Fund (BAEF) which hired advisers to evaluate the options for its stake last August.

"The transaction is expected to be marginally EPS (earnings per share) accretive for AIB and will have a minimal capital impact," Allied Irish Banks (AIB) said of the deal which is subject to regulatory approval.

Analysts said the price paid by AIB valued the bank at a reasonable looking 16 times earnings and that a relatively high rate of 5.4 times BACB's net asset value reflected the fact that with only four branches it does not have substantial assets.

"The price clearly reflects entry into a fast growing economy in the midst of ongoing consolidation," said Eamonn Hughes, analyst at AIB's own stockbroking arm Goodbody.

"The relatively small size of this deal in a group context means it will have minimal impact on our overall view on the stock," he said of an acquisition that represents about 2 percent of AIB's total stock market value.

BACB, which has 137 employees and specializes in providing secured finance to small and medium sized companies, is based in Sofia and has four offices in regional cities but uses a mobile staff network to cover a further 15 cities.

Its net income was 27 million euros in 2007, AIB said.

"The acquisition is consistent with AIB's long term strategy for entering new markets," NCB analysts wrote. "The investment in BACB is modest in the context of AIB Group and appears opportunistic given the decline in the share price."

"GROWTH OPPORTUNITY"

AIB owns a 70.5 percent stake in Poland's BZ WBK BZWB.WA bank and last year expanded its presence in the Baltics by buying the AmCredit mortgage finance unit of the Baltic-American Enterprise Fund for 40 million euros.

It also has a presence in the United States both through its own operations and a 25 percent stake in M&T Bank Corp (MTB.N).

"This investment is part of AIB's strategy for central and eastern Europe which involves acquiring and investing in businesses at reasonable valuations in targeted high growth markets," AIB Chief Executive Eugene Sheehy said in a statement.

AIB described BACB, which was established in 1996 and listed on the Bulgarian stock exchange in March 2006, as an "exciting growth opportunity" given the exposure of its business clients to the benefits of EU accession and foreign direct investment.

"The bank consistently has been the most profitable bank in Bulgaria," BACB Chief Executive Frank Bauer said. It has a BB/Stable/B credit rating from Standard & Poor's, AIB said.

AIB shares were down 1 percent at 13.66 euros by 1038 GMT but outperforming a 1.4 percent weaker Irish market .ISEQ.

The stock, in common with other Irish banks .IFIN, has lost almost half its value since setting a record high 12 months ago as the global credit crunch compounded worries over an end to Ireland's decade long property boom.

AIB this week posted a 13 percent rise in underlying 2007 earnings but said growth would slow to about a third of that rate in 2008 when a weaker Irish economy will curb lending.

Shares in BACB, which have roughly doubled since their 2006 stock market listing, were 1.5 percent higher at 67.00 levs.

AIB was advised on the deal by its own corporate finance team while vendor BAEF was advised by Italy's UniCredit (CRDI.MI) via the CA IB Corporate Finance wing of its Bank Austria Creditanstalt division.

(Editing by Paul Bolding and Erica Billingham)